2008 Annual Report

For personal use onlyFor personal use onlyFor personal use only

Annual Report
Contents
Chairman’s Report2

Notes to the Financial Statements (continued)

Chief Executive Officer’s Report

3

Chief Financial Officer’s Report

4

14
15
16
17

Ten Year Summary

14

Directors’ Report

16

Principal Activities
ResultState of Affairs
Dividends
Review of Operations
Events since the end of the Financial Year
Future Developments
Environmental Regulation
Directors’ Qualifications, Experience and Special Responsibilities
Company Secretaries’ Qualifications and Experience
Non-Audit Services
Lead Auditor’s Independence Declaration
Directors and Officers who were previously partnersof the Auditor
Chief Executive Officer/Chief Financial Officer Declaration
Directors’ And Officers’ Indemnity
Rounding Of Amounts
Executive Officers’ and Employee Share Options
Remuneration Report

		
		
		
		
		
		
		

Director Remuneration
Non-executive Directors’ Remuneration
Executive Remuneration Structure
Chief Executive Officers’ Remuneration
Disclosed Executives’ Contract terms
Equity Instruments Relating to Disclosed Directors
and Executives

Copy of the Auditor’s Independence Declaration

16
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32
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41

Corporate Governance Statement

42

Shareholder Information

56

Financial Report

60

Income Statements
Balance SheetsStatements of Recognised Income and Expense
Cash Flow Statements

60
61
62
63

Notes to the Financial Statements

641

Significant Accounting Policies

642

Critical Estimates and Judgements Usedin Applying Accounting Policies
IncomeExpensesCompensation of Auditors
Current Income Tax Expense
Dividends
Earnings per Ordinary Share
Liquid Assets
Due from Other Financial Institutions
Trading Securities
Derivative Financial Instruments
Available-for-sale Assets

76
78
79
80
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84
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91

3
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46
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50

Net Loans and Advances
Impaired Financial Assets
Provision for Credit Impairment
Shares in Controlled Entities, Associates
and Joint Venture Entities
Tax Assets
Goodwill and Other Intangible Assets
Other Assets
Premises and Equipment
Deposits and Other Borrowings
Income Tax Liabilities
Payables and Other Liabilities
Provisions
Bonds and Notes
Loan Capital
Share Capital
Reserves and Retained Earnings
Minority Interests
Capital Management
Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets
Financial Risk Management
Fair Value of Financial Assets and Financial Liabilities
Maturity Analysis of Assets and Liabilities
Segment Analysis
Notes to the Cash Flow Statements
Controlled Entities
Associates
Interests in Joint Venture Entities
Securitisations
Fiduciary Activities
Commitments
Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
Superannuation and Other Post Employment
Benefit Schemes
Employee Share and Option Plans
Key Management Personnel Disclosures
Transactions with Other Related Parties
Exchange Rates
Events Since the End of the Financial Year

92
93
93
96
99
100
101
101
103
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109
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141
148
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152
154
155
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168
174
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175

Directors’ Declaration

176

Independent Auditor’s Report

177

Financial Information

178

1
2
3
4
5
6

178
181
184
185
186
187

Capital Adequacy
Average Balance Sheet and Related Interest
Interest Spreads and Net Interest Average Margins
Special Purpose and Off-Balance Sheet Entities
Leveraged Finance
Asset-Backed Securities

Glossary of Financial Terms

188

Alphabetical Index

192
ANZ Annual Report 2008 1

Chairman’s
ReportFor personal use only

A message from Charles GoodeANZ 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 thechanging environment and a number of process and control issues in the Bank. While the economic outlook is softer, wehave 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$3,319 million, down 21% and cash profit* was $3,029 million,
down 23%. Both reflect credit related losses.

Four new Directors will be appointed to the Board over the next
twelve months to add further experience and expertise and to
facilitate a transition with the planned retirements of some directors.

Importantly, our business remains strong and we maintained thedividend at 136 cents per share fully franked.

Margaret Jackson and Jerry Ellis will retire during 2009. Both havemade a very considerable contribution to the Board. We appointedPeter Hay, a leading Australian corporate lawyer with experience
in investment banking, and Alison Watkins, who has experiencein small business, retailing and financial services, to our Board
in November.

The global economic environment softened and financial markets
were in turmoil as a result of the US sub-prime crisis. In thisenvironment ANZ experienced a significant increase in provisions
for credit impairment following the cyclical lows in 2007. We kept
shareholders informed as these issues emerged through trading
updates during the year.
A number of deficiencies in our Institutional Division in risk
management and operational controls were identified andremedial action is being taken. We are addressing a backlogof expenditure in our technology and systems.
Our results were a solid achievement in a time when manyother banks in the world faced considerable difficulty. I thankmanagement and staff for their contribution.

Expansion and growth

Sir Rod Eddington, one of Australia’s most respected businessleaders with extensive international business experience, hasagreed to join the Board and succeed me as Chairman. He will join
the Board in the third quarter of 2009 when he has relinquishedsome of his current commitments and will assume the Chair after
a transition period at which time I will retire from the Board.
We aim to be a super regional bank and this involves further
expansion into Asia. We are very pleased that Lee Hsien Yang,an experienced Asian business leader who lives in Singapore
and has considerable knowledge of the region, has also agreed
to join our Board from 1 February 2009.

ANZ has an aspiration to become a super regional bank throughexpanding in Asia. Our underlying performance and progress acrossthe Group in 2008 reinforces that ANZ has a good foundation onwhich to build and achieve this aspiration.

Outlook

We have made a number of senior management appointments
to strengthen and expand ANZ. Susie Babani joined from HSBC
and was appointed Group Managing Director Human Resources.
Christopher Page, also from HSBC, initially joined ANZ as Headof Risk for Asia Pacific and was subsequently appointed Chief
Risk Officer. Margaret Payn was appointed to lead Strategy andMarketing and focus on strategic productivity improvements
across the Bank.

The underlying performance of our business and our strategic
focus on Asia however provide the foundation for us to manage
through these uncertain times and deliver acceptable returns
for shareholders over the longer term.

Looking ahead, although coordinated action by governments
and regulators has helped to provide stability to the global
financial system, economic growth will be much softer in 2009.

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.

* Adjusted for non-core items (i.e. significant items and non-core income arising from theuse of derivatives in economic hedges and fair value through profit and loss).

2 ANZ Annual Report 2008

Charles Goode Chairman

Chief Executive
Officer’s Report

For personal use only

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 bankfocused 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 rightfoundation 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’searnings fell 21% in 2008, underlying revenue* grew 12%. Lending
growth for the year was 16% and growth in deposits and otherborrowings was 21% highlighting an increased reliance on AA rated
banks, the relative strength of the regional economy and the qualityof ANZ’s franchise.
The Personal Division and our rapidly growing Asia Pacific Divisiondelivered very good performances. The Institutional Division
improved on an underlying basis but provisions and valuation
adjustments had a significant impact on the result for the Group
as a whole. The performance in New Zealand was softer reflecting
a weaker economy.
Our results demonstrated ANZ’s ability to weather an extremely
challenging year. We have maintained our dividend, provided
security and confidence for our customers and worked hard tomeet community expectations with responsible, sustainablebanking services.
Since I joined ANZ in October 2007, we have done much to put
the Bank on a new footing with a clear strategy focused on creatinga super regional bank. We recognised the new reality in financial
markets early and strengthened the balance sheet, increased
capital and liquidity and systematically tackled some deficiencies
in operating processes and controls.
We have identified four areas that we will focus on to deliver on
our aspiration and we have made good progress in bringing them
alive. These areas are:

Customer focus. Our business should be designed around ourcustomers’ needs rather than product lines. This means removing
silos and boundaries in our business and bringing us closer together
as ‘One ANZ’.
Marketing and sales. We need to shift our thinking from sellingcommodity products to looking at differentiating the way we market
ourselves, the way we segment our offering and the way we serve
our customers.

Performance. We need out performance at every level – financial

out performance, out performing in customer service and in ourwork ethic.
We have made good progress in 2008, however there is muchthat needs to be done over the next four years to deliver on our
aspirations.
Although we expected credit costs to increase in 2008, provisions
were high. In the wake of these losses, we have undertaken a review
of our business to ensure that everything we do is core to our clients’needs and our risk appetite is managed well.
We undertook a review of our Securities Lending business. Action was
taken against a number of employees and we committed to a 13-point
remediation plan.
In September, we announced a new structure for our businessto accelerate progress with our strategy and to improve financial
performance.
We have also built a strong management team of bankers withover 250 years of banking experience on our management board.
I believe there is no substitute for bankers with experience of goodtimes and bad, and the experience to understand and see difficult
times through.
These actions will ensure ANZ will be a stronger, more effective
business in the future.
ANZ now has the right foundation to build upon and there are
significant opportunities emerging. Continuing to manage in a
steady decisive manner will set ANZ up to deliver on our aspiration
to become a super regional bank. This is the key to creating greater
value and out-performance for our shareholders over the longer term.
I believe we have a clear direction and the capacity to make ANZ agreat regional company. We are in the right place in the Asia Pacificregion, at the right time with the right people to deliver performanceand value to our shareholders.

Technology. We need a different philosophy to bring us up to thelevels of technology used by banks globally, not just in Australia or
New Zealand.

Michael Smith Chief Executive Officer* Adjusted for non-core items (i.e. significant items and non-core income arising from theuse of derivatives in economic hedges and fair value through profit and loss), credit risk
on derivatives and a structured trading transaction offset in tax expense.

Chief Executive Officer’s Report 3

Chief Financial Officer’s
ReportFor personal use only

A message from Peter Marriott

ANZ reported a profit after tax of $3,319 million for the year ended 30 September 2008.

Income Statement ($m)

2008

2007

Movt

Net interest income
Other operating income1

7,850
4,309

7,302
4,038

8%
7%

Operating income
Operating expenses

12,159(5,696)

11,340(4,953)

7%
15%

Profit before credit impairment and income tax
Provision for credit impairment

6,463(1,948)

6,387
(522)

1%
large

Profit before income tax
Income tax expense
Minority interest

4,515(1,188)(8)

5,865(1,678)
(7)

-23%
-29%
14%

Profit attributable to shareholders of the Company

3,319

4,180

-21%

1 Includes share of joint venture and associates profit.

ANZ reported a profit attributable to shareholders of the Company
of $3,319 million for the year ended 30 September 2008, down
$861 million from $4,180 million for the year ended 30 September
2007. The results were impacted by a $1,426 million increase incredit impairment charges and a $721 million charge for credit risk
on derivatives.
Key factors influencing the decrease in profit were:	Net interest income increased $548 million (8%) from $7,302
million for the year ended 30 September 2007 to $7,850 million
for the year ended 30 September 2008. Net interest income
was driven by lending growth of 16% and deposits and otherborrowings growth of 21%, partially offset by a decline in net
interest margin of 18 basis points.
	Other operating income increased $271 million (7%) from
$4,038 million for the year ended 30 September 2007 to$4,309 million for the year ended 30 September 2008. The
increase included a $353 million gain on Visa shares, an increaseover 2007 of $188 million arising from volatility from the use ofderivatives in economic hedges and use of the fair value option,and reductions in other operating income relating to an increasein credit risk on derivatives of $676 million, which is treated as
negative income, a decrease of $127 million relating to a
structured trading transaction, which is offset by an equivalentcredit in income tax expense and gains from the sale of Fleet
Partners Pty Limited and Truck Leasing Limited in 2007 not
repeated in 2008.
	Operating expenses increased $743 million (15%) from $4,953
million for the year ended 30 September 2007 to $5,696 million
for the year ended 30 September 2008. The increase included
costs associated with an organisational transformation of $218
million and $34 million for an impairment of an intangible asset.

4 ANZ Annual Report 2008

	Provision for credit impairment increased $1,426 million from$522 million for the year ended 30 September 2007 to $1,948
million for the year ended 30 September 2008 as a result of theongoing deterioration in the global credit market and a softening
in the New Zealand and Australian economies.
	Income tax expense decreased $490 million (29%) from $1,678
million for the year ended 30 September 2007 to $1,188 million
for the year ended 30 September 2008. The effective tax rate was
26.3%, a reduction of 2.3% from 30 September 2007. The decreaseprimarily reflects higher equity accounted earnings, increased
concessionally taxed Offshore Banking Unit (OBU) income, mainly
as a result of the structured transaction referred to above, therestatement of deferred tax balances in 2007 for the announced
New Zealand tax rate change and non-assessable mark-to-market
gains on fair valued assets related to our associate investments.
These items were partially offset by the usage of capital losses,
which offset the gain from the sale of Esanda Fleetpartners.
Analysis in greater detail of business performance in major income
and expense categories follows.

Net Interest Income
Net interest income increased $548 million (8%) to $7,850 million
for the year ended 30 September 2007. Net interest income wasdriven by an increase in average interest earning assets of 17% andgrowth in average deposits and other borrowings of 22%, partially
offset by a decline in net interest margin of 18 basis points.
The increase in average interest earning assets included a 16%
increase in net advances, primarily in Mortgages, from growth inretail housing and investment loans. Institutional grew 30% due tocorporate re-intermediation following the tightening of global credit
markets earlier in the year and New Zealand grew 8% with growth
primarily across the Retail and Rural businesses.

For personal use only

Other interest earning assets increased 26% due to higher trading
and investment securities and other liquid assets, primarily inMarkets, following our decision to hold a higher liquidity portfolio
during the current market turmoil.
Average deposits and other borrowings increased 22%, withcustomer deposits growing by 12%. Personal grew 14% as a resultof ongoing marketing campaigns, branch expansion and higher
deposit rates. Institutional grew 16% due to customer acquisition
and a flight to cash investments reflecting share market volatility.
Wholesale funding grew 58% to fund growth in the asset book withgrowth in Group Treasury, Institutional and New Zealand.
Net interest margin was down 18 basis points to 2.01% from
September 2007, with the key drivers being:	Credit market impacts (-7 basis points) due to higher wholesalefunding costs and competitive pressures offset by out of cycle
rate adjustments and the benefit in a rising rate environment on
deposits and capital.
	Funding mix (-5 basis points). Margins were impacted by a lower
proportion of funding through deposits and a higher proportionof wholesale funding.
	Asset mix (-2 basis points) resulting from a lower proportionof high margin lending assets in Personal and an increase in
the proportion of low margin in business in Institutional.
	Other items (-4 basis points). Higher funding costs associatedwith unrealised trading gains, however this is directly offset byan equivalent increase in trading income.

OTHER OPERATING INCOME
Other operating income increased $271 million (7%) to $4,309
million for the year ended 30 September 2008. Excluding the gain
on Visa shares of $353 million, the increase of $188 million arisingfrom volatility from the use of derivatives in economic hedges anduse of the fair value option and reductions relating to the increasein credit risk on derivatives of $676 million that is treated as
negative income (refer page 6) and the decrease of $127 million
relating to a structured trading transaction offset in tax expenseand gains from the sale of Fleet Partners Pty Limited and Truck
Leasing Limited of $195 million recognised in 2007, other operating
income increased $728 million (18%).
Net fee and commission income increased $276 million, withan increase of $104 million in lending fees primarily in Personal(reflecting volume growth particularly in Banking Products,
Mortgages and Consumer Finance) and Institutional (reflecting
volume growth in Relationship Lending, Corporate Finance, Markets
and Business Banking). Non lending fee income increased $172
million with the main areas of growth being Consumer Finance andBanking Products within Personal following pricing initiatives andaccount acquisitions, and Corporate Finance within Institutional
following strong deal activity.
Foreign exchange earnings increased $250 million primarily inMarkets, due to volatility in global currency markets and higher
sales volumes, and Group Centre, which benefited from hedge
gains due to the weaker NZD and USD.

Other income increased $89 million primarily in Asia Pacific fromhigher equity accounted income from our investments in AMMB
Holdings Berhad (AMMB) and Shanghai Rural Commercial Bank(SRCB) and increased income from Panin Bank.

OPERATING EXPENSES
Operating expenses increased $743 million (15%) to $5,696 million
for the year ended 30 September 2008. Excluding the impactof the costs associated with an organisational transformation of$218 million and $34 million for an impairment of an intangible
asset, operating expenses increased $491 million (10%).
Personnel costs were up $269 million (9%) as a result of annual
salary increases and a 7% increase in staff numbers from additional
staff to support new initiatives and business growth. Premises
costs increased $50 million (11%), driven mainly by higher rental
expense reflecting additional space requirements, the impact of
the sale and leaseback program and market rental growth. Computer
costs increased $15 million (3%) due to an increase in computer
contractors to enhance technology risk management and forarchitecture investment programs.
Other expenses increased $157 million (17%) with the major
increases being professional fees, mainly from the review of the
Securities Lending business, initiatives pursuant to the growthstrategy in Asia Pacific, advertising spend in Personal to support
growth campaigns, sponsorship in Group Centre, and an increasein non-lending losses.

PROVISION FOR CREDIT IMPAIRMENTProvision for credit impairment increased $1,426 million to$1,948 million for the year ended 30 September 2008. The
individual provision charge increased $691 million. Institutional
increased $532 million reflecting the deterioration in global credit
markets and a softening Australian economy with downgrades
for a small number of customers in the broking, finance, mining,business services and manufacturing sectors, together with animpairment expense of $98 million relating to securities backed
by US Alt-A mortgages and corporate debt instruments held in
the liquidity portfolio accounted for on an available-for-sale basis.
New Zealand increased $105 million driven by higher retailconsumer and small to medium business provisioning charges as
weak economic conditions impacted household income, consumer
spending and small businesses. Personal increased $44 million
driven by higher losses in Esanda, Personal Loans and Small
Business Banking Products which have been mostly offset by an
improved loss rate in Consumer Credit Cards.
The collective provision charge increased $735 million. This
included an economic cycle adjustment charge of $225 million
due to the deterioration in global credit markets and a slowing
New Zealand economy, as well as an incremental risk charge of$300 million to reflect higher portfolio concentration risk within
the Institutional portfolio. In addition, Institutional increased$181 million due to portfolio growth and risk movements.
New Zealand increased an additional $30 million from an increasein unsecured consumer delinquencies and a weakening in the small
to medium business risk profiles.

Chief Financial Officer’s Report 5

Chief Financial Officer’s Report (continued)

CREDIT RISK ON DERIVATIVES

For personal use only

ANZ recognised $721 million of credit risk on derivatives during the year as negative revenue in the Income Statement.
Full year
Sep 08$m

Full year
Sep 07$m

Credit risk on derivatives
Credit intermediation trade related
Counterparty defaults
Other counterparties

531
156
34

–
–
45

Credit risk on derivatives

721

45

This charge arose from:changes to the creditworthiness of counterparties to our
structured credit intermediation trades,
defaults on customer derivative exposures with two mining
companies and a financial institution, andchanges in counterparty credit ratings on the remainder ofour derivatives portfolio.

ANZ entered into a series of structured credit intermediation tradesfrom 2004 to 2007. The underlying structures involve credit default
swaps (CDS) over synthetic collateralised debt obligations (CDOs)(80%), portfolios of external collateralised loan obligations (CLOs)(12%) or specific bonds/floating rate notes (FRNs) (8%).
ANZ sold protection using credit default swaps over these structures
and then to mitigate risk purchased protection via credit default
swaps over the same trades from eight US financial guarantors manyof which are rated AAA.
As derivatives, both the sold protection and purchased protection
are marked-to-market. Prior to the commencement of the global
credit crisis, gains and losses were not significant and offset eachother in income.
The value of the obligation under the sold protection has grown
to USD1.4 billion, for which the purchased protection has provided
only a partial offset as:
one of the purchased protection counterparties has defaulted, and

ANZ has made a credit valuation adjustment on the remaining
counterparties. Although many of the US financial guarantors
are AAA or AA, their credit spreads have increased significantly.

As a result of the above, the aggregate of credit risk expense for
credit intermediation trades is USD425 million ($531 million) for
the financial year 2008.
It is likely there will continue to be substantial volatility in thismarket value, however ANZ expects the mark-to-market adjustment
for credit risk on these structured credit derivatives to substantiallyreverse as either credit spreads contract and/or the derivatives
reach maturity.

6 ANZ Annual Report 2008

IMPAIRED ASSETS
Gross non-performing loans at $1,750 million represent a$1,084 million increase over 30 September 2007. The increaseis principally in Institutional and due to a number of downgrades
spread across the finance sector (including broking and financial
asset investors), health care and business services segments.
The New Zealand Businesses increase was primarily driven bycustomer downgrades in the retail and small to medium businessportfolios. The increase in Personal was driven by higher retailchattel default rates in Esanda (particularly in the commercial andused car sectors), margin lending and residential investment loan
defaults relating to a very small number of private bank customers
and an increase in defaults across commercial and agriculture
customers in Regional and Rural Banking.

CAPITAL AND FUNDING
ANZ’s Tier 1 capital ratio of 7.7% compares well globally andagainst domestic peers. The Group has been proactive throughout
the year in its efforts to further strengthen capital, undertaking aseries of initiatives including exchanging StEPS for ordinary equity,
underwriting the 2007 final and 2008 interim dividend and raising$1.7 billion in hybrid Tier 1 capital. To further strengthen its capitalratios ANZ will also underwrite the final 2008 dividend.
Notwithstanding particularly challenging capital market conditions,
ANZ has issued a record $39 billion of term wholesale debt during
the year to further strengthen our funding and liquidity position.
Additionally, since 30 September 2008 the liquid asset portfolio
has been significantly increased to over $53 billion, which provides
sufficient cover for 1 year of all offshore wholesale debt maturities.

Chief Financial Officer’s Report (continued)

Balance Sheet Summary
As at
Sep 07$m

Movt
Sep 08 v.
Sep 07

AssetsLiquid assets
Due from other financial institutions
Trading and available-for-sale assets
Derivative financial instruments
Net loans and advances including acceptances
Other

25,0309,862
32,65736,941
350,484
16,05016,987
8,040
29,173
22,204
303,415
12,954

47%
23%
12%
66%
16%
24%

Total assets

471,024

392,773

20%

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Bonds and notes
Other

20,092283,966
31,927
15,29767,32325,867

19,116
233,743
24,18014,53654,07525,075

5%
21%
32%
5%
24%
3%

Total liabilities

444,472

370,725

20%

Total equity

26,552

22,04820%

For personal use only

As at
Sep 08$m

ANZ recorded solid balance sheet growth through the year ended
30 September 2008 with asset and liability growth of 20%.
Major movements in asset and liability categories include:
Liquid assets increased $8.0 billion to $25.0 billion at
30 September 2008 mainly from an increase in bankcertificates of deposit of $5.1 billion primarily in the United
Kingdom, Singapore and the United States. Repurchaseagreements increased $1.6 billion in Group Treasury and cash
holdings increased $1.2 billion, primarily in New Zealand.
Derivative assets increased $14.7 billion to $36.9 billion, andderivative liabilities increased $7.7 billion to $31.9 billion at
30 September 2008 driven by significant volatility in the foreignexchange, interest rate and credit derivative markets and gains
on hedges of our foreign currency debt.
Net loans and advances including acceptances increased$47.1 billion to $350.5 billion at 30 September 2008. Growth inAustralia was $31.3 billion or 15%. Personal grew by $17.0 billion(12%) mainly due to growth in housing loans from Mortgages.
Institutional grew by $14.3 billion (21%) largely driven by
re-intermediation of corporate customers following the tighteningof global credit markets. New Zealand Businesses grew by$6.6 billion (9%) mainly due to increases in Retail and Private
Banking and Rural Banking. Overseas Markets increased$9.2 billion (76%) due primarily to growth in corporate lendingin Asia and the United Kingdom.

Deposits and other borrowings increased $50.2 billion to$284.0 billion at 30 September 2008. Australia increased$29.6 billion (19%) largely as a result of growth in Personal of$8.1 billion (12%) following branch expansion, ongoing marketing
campaigns and improved attractiveness of bank deposits given
higher interest rates and share market volatility; Institutional
increased $7.2 billion (13%) due mainly to growth in term and otherhigh interest deposit accounts and Treasury increased $14.3 billion
largely due to an increase in certificates of deposit to fund lending
growth. New Zealand increased $4.6 billion (8%) with increases
largely in Treasury and Retail Banking. Overseas Markets increased$16.0 billion (82%) due to an increase in customer term deposits
and higher certificates of deposit issued to fund lending growth.
Bonds and notes increased $13.2 billion to $67.3 billion at
30 September 2008 in Australia and New Zealand. $5.6 billion of
the growth was in response to increased term funding requirements
and $7.6 billion was the result of exchange rate movements.

Chief Financial Officer’s Report 7

Chief Financial Officer’s Report (continued)

For personal use only

Personal division
Income Statement ($m)

2008

2007

Movt %Net interest income
Other operating income

3,424
1,481

3,112
1,326

10%
12%

Operating income
Operating expenses

4,905(2,349)4,438(2,150)11%
9%Profit before credit impairment and income tax
Provision for credit impairment

2,556
(437)

2,288
(386)

12%
13%

Profit before income tax
Income tax expense and minority interest

2,119
(634)

1,902
(572)

11%
11%

Profit after tax

1,485

1,330

12%

Total assets

167,863

150,523

12%

Employee numbers

13,132

12,767

3%

Profit after tax increased $155 million (12%) to $1,485 million forthe year ended 30 September 2008. This increase was driven bystrong income from average lending and customer deposit growth(both at 12%), and the continued benefits from ongoing investmentin the business.
Net interest income increased 10% with strong balance sheet growth,
while margins reduced 3 basis points reflecting increased funding
costs, competition and a shift to lower margin products. Other
operating income increased 12% driven by new customer accountacquisition and revenue initiatives. Operating expenses increased
9% or $199 million, with the main drivers including increased

8 ANZ Annual Report 2008

personnel costs mainly from increased customer facing and support
roles. Premises costs and marketing costs increased to drive footprint
expansion and revenue growth. The branch investment program
concluded, meaning we incurred nearly a full year of costs relating
to our expanded branch operations. Non-lending losses increased$13 million, while technology expenses to support initiatives andthe branch network increased $13 million. Credit costs increased
13% with the major drivers being volume growth, acquisition growth
and a decline in market conditions leading to higher delinquencies
and bankruptcies.

Chief Financial Officer’s Report (continued)

For personal use only

Institutional Division1
Income Statement ($m)

2008

2007

Movt %Net interest income
Other operating income

2,259
1,071

1,984
1,481

14%
-28%

Operating income
Operating expenses

3,330(1,492)

3,465(1,335)-4%
12%

Profit before credit impairment and income tax
Provision for credit impairment

1,838(1,218)

2,130
(24)

-14%
large

Profit before income tax
Income tax expense and minority interest

620
(94)

2,106
(624)

-71%
-85%

Profit after tax

526

1,482

-65%

208,040

157,661

32%

6,051

5,373

13%

Total assets
Employee numbers

1 Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed.

Profit after tax decreased $956 million (65%) to $526 million for theyear ended 30 September 2008. These results have been adversely
impacted by the global credit crisis, including recognition ofsignificant credit risk on derivatives of $721 million.
Net interest income increased 14% with growth in average net
lending assets of 30% and average deposits of 27%. The main
impacts on margins were higher funding costs, partially offset byrepricing of the book which led to an improved margin performance.
Other operating income (excluding credit risk on derivatives)
increased by 17%. Non-lending fees increased by 14%, and foreignexchange earnings by 30%. Growth rates in New Zealand (50%) andAsia (58%) were particularly strong.
Operating expenses grew 12% driven by growth in staff numbersof 13%, with increases concentrated in our strategic growth areasof Asia and Markets and in frontline relationship staff.

Provisioning for credit impairment increased materially. The collective
provision charge for the year of $672 million reflected balance sheet
growth, a general deterioration in the overall quality of the lending
portfolio and the charges taken to reflect increased concentration
risk to financial institutions (including securities lending) and theproperty sector. Individual provision charges were dominated by twolarge securities firms’ exposures, two mining exposures, the collapseof an offshore financial institution and the write-down and salesof certain corporate debt securities and certain bonds backed by
US Alt-A mortgages held for liquidity purposes. Income tax expensedecreased as a result of a structured transaction that had a positive
outcome after tax. This transaction reduced income tax expense$127 million, with an offsetting reduction to revenue.

Chief Financial Officer’s Report 9

Chief Financial Officer’s Report (continued)

For personal use only

New Zealand BusinessES
Income Statement ($m)

2008

2007

Movt %Net interest income
Other operating income

1,644
506

1,658
508

-1%
0%

Operating income
Operating expenses

2,150(1,027)

2,166(1,036)-1%-1%

Profit before credit impairment and income tax
Provision for credit impairment

1,123
(240)

1,130
(69)

-1%
large

Profit before income tax
Income tax expense and minority interest

883
(283)

1,061
(341)

-17%
-17%

Profit after tax

600

720

-17%

Total assets

76,25670,5508%

Employee numbers

9,178

9,087

1%

Profit after tax decreased $120 million (17%) to $600 million forthe year ended 30 September 2008. The result was impacted by
the devaluation of the average NZD exchange rate, with NZD profit
declining NZD100 million or 12%. The combination of domestic
recession and the impact of the global credit crunch has had asignificant impact on business performance in 2008. The Retailbusinesses have been most affected by the economic slowdown
which has been led by the household sector: they have experienced
a marked slowdown in the volume of new business, increased
levels of household sector stress (driven by higher interest rates,
fuel and food costs) and a switch to intense competition fordomestic deposits as global funding conditions have tightened.
Net interest income decreased 1%, however excluding the impact
of exchange rates increased 4% with balance sheet growth (lending
9% and customer deposits 6%) partially offset by a 21 basis point
contraction in margins. Deposit margins contracted as a resultof increased competition and unfavourable mix in a high rateenvironment with migration of customers from low to high yielding
products.

10 ANZ Annual Report 2008

Operating expenses decreased 1%, however excluding the impact
of exchange rates increased 4%. Cost growth was due to annual
increases in salaries, an increase in the number of customer-facing
staff and investment in businesses initiatives, partially offset bystrong control of discretionary expenditure. The cost to income ratio
was stable at 47.8%.
The individual provision charge increased $105 million, largely
reflecting increasing mortgage, consumer and small-to-medium
business arrears in response to the significant downturn in theeconomy and resultant stress in the household sector. The collective
provision charge increase of $66 million mainly reflected the impactof the economic environment on mortgages, personal loans, credit
cards and small-to-medium size business lending, and an economic
cycle adjustment of $34 million to reflect the rapid deterioration in
the economy during 2008.

For personal use only

ASIA PACIFIC Division1
Income Statement ($m)

2008

2007

Movt %Net interest income
Other operating income

480
559

347
365

38%
53%

1,039
(470)

712
(322)

46%
46%

Profit before credit impairment and income tax
Provision for credit impairment

569
(64)

390
(42)

46%
52%

Profit before income tax
Income tax expense and minority interest

505
(92)

348
(77)

45%
19%

Profit after tax

413

271

52%

Total assets

32,147

17,051

89%

Employee numbers

4,394

3,308

33%

Operating income
Operating expenses

1 Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed.

Profit after tax increased $142 million (52%) from $271 million
for the year ended 30 September 2007 to $413 million for theyear ended 30 September 2008. This growth was driven mainly bypartnerships in Asia with full year earnings received for investments
in AMMB Holdings Berhad (AMMB) and Shanghai Rural Commercial
Bank (SRCB), which were acquired late in 2007, and mark-to-market
gains on warrants in P.T. Bank Pan Indonesia (Panin). Institutional
Asia Pacific profit grew 38% reflecting increased markets capability
and income from our investment in Saigon Securities Inc (SSI).
These gains were partly offset by increased investment in ourorganic business particularly in front office markets capability andinvestments in branches in key strategic markets such as Vietnam
and Indonesia.
Net interest income increased 38% driven by growth of 56% inaverage lending assets and 29% in average deposits. The growthin the loan book was largely funded through increased customer
deposits as we leveraged the corporate and retail network throughout
the region.

Other operating income grew 53%, which was due mainly toincreased equity accounted earnings from our various partnerships in
Asia. Other factors contributing to the increase include higher income
in Markets Asia Pacific on the back of volatility in the global markets,
increased product offering and sales strength in Asia, increased
trade flows in Papua New Guinea and the booking of mark-to-market
gains on bonds convertible into shares in SSI and warrants in Panin.
Operating expenses increased 46% as we extended the branch
networks in Vietnam, Cambodia, Papua New Guinea, Indonesia
and Solomon Islands. Client relationship and specialist resourceswere boosted in Asia in order to build the business notwithstanding
underlying inflationary pressures brought about by strong economic
growth in the Asian countries. Our regional hubs in Hong Kong andSingapore were also extended to house the increased leadership andsupport resources required to drive the growth agenda. Provision for
credit impairment increased 52%, due primarily to asset growth andan increase in the collective provision to reflect global credit market
turmoil during 2008.

Chief Financial Officer’s Report 11

Chief Financial Officer’s Report (continued)

For personal use only

ING Australia joint venture
Income Statement ($m)

2008

2007

Movt %

Funds management income
Risk income

497
328

501
284

-1%
15%

Operating income
Expenses
Gross tax on operating profit

825
(468)
(86)

785
(474)
(68)

5%
-1%
26%

Profit after tax, before capital investment earnings
Capital investment earnings after tax

271
(18)

243
69

12%
large

Profit after tax before minority interest
Minority interest

253
–

312
(1)

-19%
-100%

Profit after tax

253

311

-19%

ANZ share
ANZ share @ 49%
Net Funding

124
2

152
3

-18%
-33%

Net return to ANZ

126

155

-19%

Despite the adverse market conditions, the joint venture achieved
12% year-on-year growth in operating profit after tax before capital
investment earnings. Other highlights included strong growth in thealigned financial adviser force, Standard & Poor’s Ratings Services
raising its insurer financial strength rating on the core life company
ING Life Ltd to AA- from A+ (outlook stable) and a significant
organisational restructure.
Funds management income fell 1% despite the 9% reduction infunds under management, due mainly to the timing (and nonrecurrence) of the exceptional inflows into superannuation products
driven by tax incentives experienced during mid-2007. Risk income
was 15% higher with the increase driven by growth in the in-force
books of term life, group life and consumer credit and was assisted
by reinsurance recoveries on income protection claims in 2008 andcontinued favourable mortality and morbidity experience.

12 ANZ Annual Report 2008

Funds management expenses were well contained due to scaleefficiencies and increased automation. Life risk expenses increased
due to the increased cost base associated with supporting the
growth in retail risk and consumer credit business. Tax on operating
profit was significantly higher due to the non-recurrence of prioryear one-off deductions. Capital investment earnings after tax weresignificantly lower than 2007 due to the cost of meeting capitalguaranteed obligations on a closed book of business causing themarket value decline on the assets which back this liability, thenon-recurrence in 2008 of a one-off realisation of capital gains of$12 million following a capital restructure in 2007, a more defensive
investment asset mix, significantly lower realisable investment gains,
and the impact of rising domestic interest rates on the value of therisk reserves and on the cost of servicing parent company loans.

For personal use only

OTHER1
Income Statement ($m)

2008

2007

Movt %Net interest income
Other operating income

210
787

290
370

-28%
large

Operating income
Operating expenses

997
(498)

660
(200)

51%
large

Profit before credit impairment and income tax
Provision for credit impairment

499
(9)

460
(2)

8%
large

Profit before income tax
Income tax expense and minority interest

490
(149)

458
(110)

7%
35%

Profit after tax

341

348

-2%

4,344

4,110

6%

Employee numbers
1 Other includes Group Centre and significant items.

Profit after tax decreased by $7 million (2%) to $341 million for theyear ended 30 September 2008.
Net interest income decreased 28% due primarily to reduced interest
earned on surplus capital following investments in Asia and higher
funding costs relating to less favourable tax timing differences andlower Treasury income. Other income increased materially with theinclusion of a gain on Visa shares of $353 million, an increase over2007 of $188 million arising from volatility from the use ofderivatives in economic hedges and use of the fair value option,
partly offset by a gain of $195 million in 2007 from the sale of
Esanda Fleetpartners.

In addition, other income increased following an improvement inearnings from matured revenue hedges and an increase in profits
on sales of properties. Operating expenses increased $298 million
largely from costs associated with an organisational transformationof $218 million and an impairment of an intangible asset of$34 million. The effective tax rate increased 6.4% to 30.4% for
the year ended 30 September 2008, primarily from the usage ofcapital losses in 2007, which offset the gain from sale of Esanda
Fleetpartners, partially offset by the restatement of deferred tax
balances in 2007 for the announced New Zealand tax rate change.

Chief Financial Officer’s Report 13

For personal use only

Ten Year
Summary

2008
$m

2007
$m

2006
$m

2005
$m

Net interest income
Other operating income
Operating expenses
Profit before income tax, credit
impairment and non-core items1
Provision for credit impairment
Income tax expense
Minority interest
Cash profit1
Non-core items1

7,850
3,645
(5,444)

7,302
3,720
(4,953)

6,943
3,146
(4,605)

6,371
2,935
(4,340)6,051(1,948)(1,066)
(8)
3,029
290

6,069
(522)
(1,616)
(7)
3,924
256

5,484
(407)
(1,486)
(4)
3,587
101

4,966
(565)
(1,247)
(3)
3,151
24

Profit attributable to shareholders of the Company

3,319

4,180

3,688

3,175

471,024
26,552
7.7%
14.5%
0.8%
47.4%

392,773
22,048
6.7%
20.9%
1.2%
44.9%

334,640
19,906
6.8%
20.7%
1.1%
45.6%

300,885
19,538
6.9%
18.3%
1.1%
46.6%

-33.5%
38,263
136c
100%
100%
$31.74$15.07$18.75

15.6%
55,382
136c
100%
100%
$31.50$25.75$29.7017.1%
49,331
125c
100%
100%
$28.66$22.70$26.8632.6%
43,834
110c
100%
100%
$24.45$19.02$24.00170.4c82.6%$10.72224.1c60.9%$9.36

200.0c62.6%$8.53

169.5c65.0%$7.77

2,040.7

1,864.7

1,836.6

1,826.4$20.82–$29.29$27.33$26.50$28.25$21.85$23.85

1,346
36,925
376,813

1,327
34,353
327,703

1,265
32,256291,262

1,223
30,976
263,467

Financial Performance1

Financial Position
Assets2
Net Assets
Tier 1 capital ratio3
Return on average ordinary equity4,5Return on average assets4
Cost to income ratio6

Shareholder value – ordinary shares

Total return to shareholders(share price movement plus dividends)
Market capitalisation
Dividend
Franked portion– interim		– final– highShare price7
		
– low
		
– 30 Sep

Share information(per fully paid ordinary share)
Earnings per share7 – basic
Dividend payout ratio8
Net tangible assets per ordinary share9
No. of fully paid ordinary
shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price		– interim		– finalOther information
Points of representation10
No. of employees (full time equivalents)
No. of shareholders11

1 Cash profit excludes non-core items. Non-core items are disclosed separately in the income
statement to remove volatility from the underlying business result, and include significant
items, ANZ National Bank incremental integration costs and non-core income arising fromthe use of derivatives in economic hedges on fair value through profit and loss. Significant
items are items that have a substantial impact on the profit after tax, or the earnings used in
the earnings per share calculation. Significant items also do not arise in the normal courseof business and are infrequent in nature. In addition, the 2005 result has been calculated on
an IFRS basis that is comparable with 2006 with the net effect of these adjustments included in
non-core items, allowing readers to see the impact on 2005 results of accounting standards
that have only been applied from 1 October 2005.

14 ANZ Annual Report 2008

2 From 1999 to 2001, consolidated assets include the statutory funds of ANZ Life as requiredby an accounting standard. For the year 2004, consolidated assets include the statutory fundsof NBNZ Life Insurance Limited. ANZ Life was sold in May 2002 and NBNZ Life Insurance wassold on 30 September 2005.
3 Calculated in accordance with Australian Prudential Regulation Authority requirements
effective at the relevant date. Basel II has been applied from 1 January 2008.
4 Excludes minority interest. The 2005 ratio has been calculated on an IFRS basis that iscomparable with that of 2006.

For personal use only

Previous AGAAP
2004
$m

2003
$m

2002
$m

2001
$m

2000
$m

1999
$m

5,252
3,267
(4,005)

4,311
2,808
(3,228)

4,018
2,796
(3,153)

3,833
2,573
(3,092)

3,801
2,583
(3,314)

3,655
2,377
(3,300)

4,514
(632)
(1,147)
(4)
2,731
84

3,891
(614)
(926)
(3)
2,348
–

3,661
(610)
(880)
(3)
2,168
154

3,314
(531)
(911)
(2)
1,870
–

3,070
(502)
(863)
(2)
1,703
44

2,732
(510)
(736)
(6)
1,480
–

2,815

2,348

2,322

1,870

1,747

1,480

259,345
17,925
6.9%
19.1%
1.2%
45.3%

195,591
13,787
7.7%
20.6%
1.2%
45.1%

183,105
11,465
7.9%
21.6%
1.3%
46.0%

185,493
10,551
7.5%
20.2%
1.1%
48.0%

172,467
9,807
7.4%
19.3%
1.1%
51.7%

152,801
9,429
7.9%
17.6%
1.0%
54.5%

17.0%
34,586
101c
100%
100%
$19.44$15.94$19.02

6.7%
27,314
95c
100%
100%
$18.45$15.01$17.17

15.3%
26,544
85c
100%
100%
$19.70$15.23$16.8826.2%
23,783
73c
100%
100%
$16.71$12.63$15.2836.3%
20,002
64c
100%
100%
$12.87$9.18$12.7019.6%
16,04556c
75%
80%$12.11$8.12$9.80

153.1c67.5%$7.51

142.4c64.2%$7.49

141.4c57.8%$6.58

112.7c62.0%$5.96

102.5c
59.1%
$5.49

86.9c
62.1%
$5.21

1,818.4

1,521.7

1,503.9

1,488.3

1,506.2

1,565.4$17.84$19.95$18.48$16.61$19.24$18.32$15.05$18.33$11.62$14.45$10.95$11.501,190
28,755
252,072

1,019
23,137
223,545

1,018
22,482
198,716

1,056
22,501
181,667

1,087
23,134
179,829

1,147
30,171
179,945

5 For the periods 1999 to 2002, the return on average ordinary equity calculation accrues thedividend over the year. From 2003, dividends may no longer be accrued and are not includedin the calculation of return on average ordinary equity.
6 Excludes non-core items. Periods prior to 2005 also exclude goodwill amortisation. The
2005 ratio has been calculated on an IFRS basis that is comparable with that of 2006.
7 Periods prior to 2004 adjusted for the bonus elements of the November 2003 Rights Issue.
8 From 2003, the dividend payout ratio includes the final dividend proposed but not provided
for in accordance with changes to accounting standards effective from the September 2003
financial year.

9 Equals shareholders’ equity less preference share capital, goodwill, software and otherintangible assets divided by the number of ordinary shares. For periods prior to 2005, thisequals shareholders’ equity less preference share capital and unamortised goodwill divided
by the number of ordinary shares.
10 Includes branches, offices, representative offices and agencies.
11 From 2000 onwards, the number of shareholders does not include the number of employees
whose only shares are held by ANZEST Pty Ltd as the trustee for shares issued under theterms of any ANZ employee incentive plan.

Ten Year Summary 15

For personal use only

Directors’
Report
The directors present their report together with the Financial Report of the consolidated entity (the Group), being Australia
and New Zealand Banking Group Limited (the Company) and its controlled entities, for the year ended 30 September 2008
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.

PRINCIPAL ACTIVITIESAt 30 September 2008, the Group had 1,346 branches andother points of representation worldwide excluding Automatic
Teller Machines (ATMs).

Capital raisings – ANZ Convertible Preference Shares of $1.1 billionand ANZ Convertible Notes of $0.6 billion were raised, dividends were
fully underwritten and ANZ StEPS were converted to ordinary shares.
Securities Lending – ANZ conducted a review of its Securities
Lending business and publicly reported key findings. Remedialactions are in progress.
Asia expansion – ANZ has progressed its super regional growthstrategy on a number of fronts including further branch expansion
in Cambodia and Indonesia and receiving regulatory approvals
to open branches in Gungzhou province in China and in Vietnam.
Further review of matters affecting the Group’s state of affairs is
also contained in the Chief Financial Officer’s Report on pages
4 to 13 of this Annual Report.

RESULT

DIVIDENDSThe Group provides a broad range of banking and financial
products and services to retail, small business, corporate
and institutional clients.
The Group conducts its operations primarily in Australia and
New Zealand (90% of total assets at 30 September 2008 are
related to these operations). The remainder of the Group’s
operations are conducted across the Asia Pacific region andin a number of other countries including the United Kingdom
and the United States.

Consolidated profit after income tax attributable to shareholdersof the Company was $3,319 million, a decrease of 21% over theprior year.
The decrease in profit is due to an increase in the provision for
credit impairment charge of $1,426 million following the ongoing
deterioration in the global credit market and softening economies
in Australia and New Zealand. In addition, the result was impacted
by an increase in credit risk on derivatives of $676 million mainly
relating to structured credit intermediation trades, which is treatedas negative income.
Balance sheet growth has been strong over the past 12 months
with total assets increasing 20%. The major components of thisincrease include:	Net advances, which increased by $46.3 billion or 16% to$335.2 billion primarily from growth in housing loans inAustralia and New Zealand and corporate lending in Institutional
particularly in Australia, Asia and the United Kingdom.
	Funding composition: the Group issued a record $39 billionof term wholesale debt during the year to further strengthen ourfunding and liquidity position. In addition, customer deposits
increased 13%.

Further details are contained on pages 4 to 13 of this Annual Report.

STATE OF AFFAIRSIn the directors’ opinion, there have been no significant changes inthe state of affairs of the Group during the financial year, other than:
Impaired financial assets – an increase in gross non-performing
loans of $1.1 billion over 30 September 2007 mainly reflected anumber of downgrades in Institutional spread across the financesector, including broking and financial asset investors, health careand business service segments.

16 ANZ Annual Report 2008

The directors propose that a final fully franked dividend of 74 cents
per fully paid ordinary share shall be paid on 18 December 2008.
The proposed payment amounts to approximately $1,511 million.
During the financial year, the following fully franked dividends were
paid on fully paid ordinary shares:

Type

Final
2007
Interim
2008

Cents
per share

Amount before bonus
option plan adjustment
$m

74

1,381

62

1,192

Date ofpayment

21 December
2007
1 July2008

The proposed final dividend of 74 cents together with the interim
dividend of 62 cents brings total dividends in relation to the year
ended 30 September 2008 to 136 cents fully franked.

REVIEW OF OPERATIONS
Review of the Group during the financial year and the results of
those operations, including an assessment of the financial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Chief Financial
Officer’s Report on pages 2 to 13 of this Annual Report.

EVENTS SINCE THE END OF THE FINANCIAL YEAR
Since balance date, global financial and equity markets haveexhibited significant volatility. The impact of this volatility on future
earnings is not capable of reliable measurement.
The adjustment for credit risk on structured credit derivatives
purchased has moved significantly since balance date, reflecting thedepreciation of the AUD against the USD (these derivative trades are
in USD) and the impact of extreme market turmoil impacting spreads
and correlation, and there will continue to be substantial volatility
in this adjustment. However, ANZ expects the adjustment for credit
risk on these structured credit derivatives to substantially reverse as
either credit spreads contract and/or the derivatives reach maturity.

For personal use only

FUTURE DEVELOPMENTS
Details of likely developments in the operations of the Groupand its prospects in future financial years are contained in thisAnnual Report under the Chairman’s Report. In the opinion of
the directors, disclosure of any further information would be
likely to result in unreasonable prejudice to the Group.

ENVIRONMENTAL REGULATIONANZ recognises our obligation to our stakeholders – customers,
shareholders, staff and the community – to operate in a way that
advances sustainability and mitigates our environmental impact.
Our commitment to improve our environmental performance isintegral to our “making a sustainable contribution to society”.
We acknowledge that we have an impact on the environment:
directly through the conduct of our business operations; and	indirectly through the products and services we provide to
our customers.

As such, ANZ has established an Environment Charter, strategy
and internal responsibilities for reducing the impact of our operations
and business activities on the environment.
The operations of the Group may become subject to environmental
regulation when enforcing securities over land. ANZ has developed
policies to manage such environmental risks.
Having made due enquiry, to the best of our knowledge, no memberof the Group has incurred any material environmental liability during
the year.
ANZ operations in Australia are categorised as a ‘high energy user’
under the Energy Efficiency Act 2006. ANZ has a mandatory obligation
to identify energy efficiency opportunities and report to the Federal
Government on progress with implementation of the opportunities
identified. As is required, ANZ has submitted a five year energy
efficiency assessment plan and will report to the Government andpublicly by 31 December 2008 and each subsequent year until theend of the five year reporting cycle.
ANZ envisages no problems on complying with the legislation as theorganisation is committed to energy efficiency and has publicly statedtargets in support of electricity reduction.
The National Green House Reporting Act introduced in July 2008 has
been designed to create a national framework for energy reporting
including creating a baseline for the emissions trading. The Act makes
registration and reporting mandatory for corporations whose energy
production, energy use, or greenhouse gas emissions trigger the
specified threshold.
ANZ is one of the 1,000 companies that meets the criteria andwill have to make its first report by October 2009. ANZ has
previously provided this information as part of the Greenhouse
Challenge Plus and makes data available each year in the Corporate
Responsibility Report. ANZ expects to be able to comply withthis new legislation.

DIRECTORS’ QUALIFICATIONS, EXPERIENCEAND SPECIAL RESPONSIBILITIESAt 1 October 2007, the Board comprised seven independent
non-executive directors and one executive director, the Chief
Executive Officer.
At the date of this report, the Board comprises seven nonexecutive directors who have a diversity of business andcommunity experience and one executive director, the Chief
Executive Officer, who has extensive banking experience. The
names of directors and details of their skills, qualifications,experience and when they were appointed to the Board arecontained on pages 43 to 45 of this Annual Report.
Details of the number of Board and Board Committee meetings
held during the year, directors’ attendance at those meetings, anddetails of directors’ special responsibilities are shown on pages 50
to 53 of this Annual Report.
Details of directorships of other listed companies held by eachcurrent director in the three years prior to the end of the 2008
financial year are listed on pages 43 to 45.

COMPANY SECRETARIES’ QUALIFICATIONSAND EXPERIENCE
Currently there are three people appointed as Company Secretariesof the Company. Details of their roles are contained on page 49. Theirqualifications are as follows:	Bob Santamaria, BCom, LLB (Hons),
Group General Counsel and Company Secretary.
Mr Santamaria joined ANZ in 2007. He had previously been a
Partner at the law firm Allens Arthur Robinson since 1987. He was
Executive Partner Corporate, responsible for client liaison with someof Allens Arthur Robinson’s largest corporate clients. Mr Santamaria
brings to ANZ a strong background in leadership of a major law
firm, together with significant experience in securities, mergers
and acquisitions. He holds a Bachelor of Commerce and Bachelorof Laws (Honours) from the University of Melbourne. He is also an
Affiliate of Chartered Secretaries Australia.
	Peter Marriott, BEc (Hons),
Chief Financial Officer and Company Secretary.
 r Marriott has been involved in the finance industry for moreMthan 25 years. Mr Marriott joined ANZ in 1993. Prior to his careerat ANZ, Mr Marriott was a Partner in the Melbourne office of thethen KPMG Peat Marwick. He is a Fellow of a number of professionalorganisations including the Institute of Chartered Accountantsin Australia and the Australian Institute of Banking and Finance. He
is also a Member of the Australian Institute of Company Directors.
 	John Priestley, BEc, LLB, FCIS,
Company Secretary.
Mr Priestley, a qualified lawyer, joined ANZ in 2004. Prior to
ANZ, he had a long career with Mayne Group and held positions
which included responsibility for the legal, company secretarial,
compliance and insurance functions. He is a Fellow of Chartered
Secretaries Australia and also a member of Chartered Secretaries
Australia’s National Legislation Review Committee.

Directors’ Report 17

Directors’ Report (continued)

LEAD AUDITOR’S INDEPENDENCE DECLARATIONThe Company’s Relationship with External Auditor Policy (which
incorporates requirements of the Corporations Act 2001) states thatthe external auditor may not provide services that are perceived to
be in conflict with the role of the auditor. These include consulting
advice and sub-contracting of operational activities normally
undertaken by management, and engagements where the auditor
may ultimately be required to express an opinion on their own work.

The lead auditor’s independence declaration given under section
307C of the Corporations Act 2001 is set out on page 41 and forms
part of this Directors’ Report for the year ended 30 September 2008.

For personal use only

NON-AUDIT SERVICES

Specifically the policy:
limits the non-audit services that may be provided;	requires that audit and permitted non-audit services must be
pre-approved by the Audit Committee, or pre-approved by the
Chairman of the Audit Committee (or up to a specified amountby the Chief Financial Officer or the Group General Manager,
Financial Reporting and Policy) and notified to the Audit
Committee; and	requires the external auditor to not commence an audit engagement(or permitted non-audit service) for the Group, until the Group has
confirmed that the engagement has been pre-approved.

Further details about the policy can be found in the Corporate
Governance Statement on page 53.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2008, and has confirmed thatthe provision of non-audit services for 2008 is consistent with
the Company’s Relationship with External Auditor Policy andcompatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. This has been formallyadvised to the Board of Directors.
The external auditor has confirmed to the Audit Committee thatthey have complied with the Company’s Relationship with External
Auditor Policy on the provision of non-audit services by the external
auditor for 2008.
The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, and the amount paid or payable by the Group by
type of non-audit service during the year ended 30 September 2008
are as follows:
Amount paid/
payable $’000s

Non-audit service

2008

2007

ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Compliance testing for securitisation transaction
Training courses

28
106
6
–
70

–
–
–
66
44

Total

210

110

For the reasons set out above, the directors are satisfied thatthe provision of non-audit services by the external auditor
during the year ended 30 September 2008 is compatible withthe general standard of independence for auditors imposedby the Corporations Act 2001.

18 ANZ Annual Report 2008

DIRECTORS AND OFFICERS WHO WERE PREVIOUSLYPARTNERS OF THE AUDITOR
The following persons were during the financial year and are
currently directors or officers of the Group and were partners of
KPMG at a time when KPMG was the auditor of Australia and
New Zealand Banking Group Limited:	Ms Margaret Jackson, Non-executive director(left KPMG in June 1992)
	Mr Peter Marriott, Chief Financial Officer(left KPMG in January 1993).

CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICERDECLARATIONThe Chief Executive Officer and the Chief Financial Officer havegiven the declarations to the Board concerning the Group’s financial
statements required under section 295A(2) of the Corporations Act
2001 and Recommendation 7.3 of the ASX Corporate GovernanceCouncil’s Principles of Good Corporate Governance and Best
Practice Recommendations.

DIRECTORS’ AND OFFICERS’ INDEMNITY
The Company’s Constitution (Rule 11.1) permits the Company toindemnify each officer or employee of the Company against liabilities(so far as may be permitted under applicable law) incurred in theexecution and discharge of the officer’s or employee’s duties. It
is the Company’s policy that its employees should not incur any
liability for acting in the course of their employment legally, within
the policies of the Company and provided they act in good faith.
Under the policy, the Company will indemnify employees against
any liability they incur in carrying out their role. The indemnity
protects employees and former employees who incur a liability
when acting as an employee, trustee or officer of the Company,
or a subsidiary of the Company at the request of the Company.
The indemnity is subject to applicable law and will not apply
in respect of any liability arising from:a claim by the Company;a claim by a related body corporate;a lack of good faith;illegal or dishonest conduct; or
non-compliance with the Company’s policies or discretions.

Executive Officers’ and Employee Share Options

The Company has indemnified the trustees and former trustees
of certain of the Company’s superannuation funds and directors,
former directors, officers and former officers of trustees of various
Company sponsored superannuation schemes in Australia. Underthe relevant Deeds of Indemnity, the Company must indemnify
each indemnified person if the assets of the relevant fund are
insufficient to cover any loss, damage, liability or cost incurredby the indemnified person in connection with the fund, being loss,
damage, liability or costs for which the indemnified person would
have been entitled to be indemnified out of the assets of the fundin accordance with the trust deed and the Superannuation Industry(Supervision) Act 1993. This indemnity survives the terminationof the fund. Some of the indemnified persons are or were directors
or executive officers of the Company.

No person entitled to exercise any option has or had, by virtue ofan option, a right to participate in any share issue of any other body
corporate. The names of all persons who currently hold options areentered in the register kept by the Company pursuant to section 170
of the Corporations Act 2001. This register may be inspected freeof charge.

For personal use only

The Company has entered into Indemnity Deeds with each of its
directors, with certain secretaries of the Company, and with certain
employees and other individuals who act as directors or officersof related body corporates or of another company. To the extent
permitted by law, the Company indemnifies the individual for
all liabilities, including costs, damages and expenses incurredin their capacity as an officer of the company to which they havebeen appointed.

Details of share options issued over shares granted to the Chief
Executive Officer and disclosed executives, and on issue as at
the date of this report are detailed in the Remuneration Report.
Details of share options issued over shares granted to employees
and on issue as at the date of this report are detailed in note 46 of
the 2008 Financial Report.

The Company has also indemnified certain employees of theCompany, being trustees and administrators of a trust, fromand against any loss, damage, liability, tax, penalty, expense or
claim of any kind or nature arising out of or in connection with thecreation, operation or dissolution of the trust or any act or omission
performed or omitted by them in good faith and in a manner thatthey reasonably believed to be within the scope of the authority
conferred by the trust.
Except for the above, neither the Company nor any related body
corporate of the Company has indemnified or made an agreement
to indemnify any person who is or has been an officer or auditorof the Company or of a related body corporate.
During the financial year, and again since the end of the financial
year, the Company has paid a premium for an insurance policy
for the benefit of the directors and employees of the Company
and related bodies corporate of the Company. In accordance with
common commercial practice, the insurance policy prohibits
disclosure of the nature of the liability insured against and theamount of the premium.

ROUNDING OF AMOUNTSThe Company is a company of the kind referred to in Australian
Securities and Investments Commission class order 98/100 (asamended) pursuant to section 341(1) of the Corporations Act 2001.
As a result, amounts in this Directors’ Report and the accompanying
financial statements have been rounded to the nearest million
dollars except where otherwise indicated.

Directors’ Report 19

Remuneration Report (Audited)

For personal use only

Introduction

The report covers both the KMP of the Company and of the Group(which includes the directors of the parent) and the five highest
paid executives in the Company and the Group. KMP are selectedaccording to the following criteria:	All directors of the ANZ Board: Based on responsibility forproviding direction in relation to the management of ANZ.
The Board Charter clearly sets out the Board’s purpose,
powers, and specific responsibilities.

This Remuneration Report discusses ANZ’s remuneration policies
which relate to key management personnel (KMP) as defined under
the Corporations Act. In the report we identify the link between
remuneration and ANZ’s performance, along with individual
outcomes for ANZ’s directors and executives.

SHORT-TERM
EMPLOYEE BENEFITS

Section A: Remuneration Tables
TABLE 1: DIRECTOR REMUNERATION
For the year ended 30 September 2008,
remuneration details of the KMP identified
as directors of the Company, are set out below:

Financial
Year

Cash
salary/fees$

Value of sharesacquired in lieu ofcash salary/fees1$

Committee
fees (cash)$

Short term
incentive 2
$

2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007

783,000
93,314142,900
144,000
177,860
157,368
134,750
192,000
152,000
89,556200,000
192,000
165,283
156,797–
689,566
57,08447,962
22,114
34,624
65,234–47,97429,852––47,97447,962––40,00036,40035,00042,00073,00069,00065,00027,06287,00077,40073,00069,000

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

–
–
–
–
17,98211
–
–
–
–
–
–
–
–
–

2007

135,581

8,399

36,750n/a1,140122008
2007

1,755,793
1,160,616

240,380
858,365

373,000
357,612n/an/a

17,982
1,140

2008

3,000,000––

2,400,000

566,56713

2007

528,587

1,553,377–

2,090,000

1,124,50714

2008
2007

4,755,793
1,689,203

240,380
2,411,742

373,000
357,6122,400,000
2,090,000

584,549
1,125,647

Other$

Current Non-Executive Directors
C Goode (Appointed director July 1991;
appointed Chairman August 1995)
Independent Non Executive Director, Chairman
G Clark (Appointed February 2004)
Independent Non Executive Director
J Ellis (Appointed October 1995)
Independent Non Executive Director
M Jackson (Appointed March 1994)
Independent Non Executive Director
I Macfarlane (Appointed February 2007)
Independent Non Executive Director
D Meiklejohn (Appointed October 2004)
Independent Non Executive Director
J Morschel (Appointed October 2004)
Independent Non Executive Director

Former Non-Executive Directors
D Gonski (Appointed February 2002;
retired 30 June 2007)7
Independent Non Executive Director

Total of all Non-Executive Directors
Executive Director
M Smith (Appointed October 2007)8,9
Chief Executive Officer

Former Executive Director
J McFarlane (Appointed October 1997;
retired 30 September 2007) 8,10
Former Chief Executive Officer

Total of all Directors

Commentary on changes between 2007 & 2008
Non-Executive Directors
Despite the increase in NED fees for 2007/08 (refer to B1), there is
only a slight increase in 2008 Total Remuneration for Non-executive
Directors (NEDs) compared with 2007 ($6,766). The small difference
can be primarily attributed to the retirement of D Gonski in June
2007. For all other NEDs (excluding I Macfarlane), the year-on-yearchange is small (i.e. less than $20,000). For I Macfarlane, the notable
year-on-year difference is due to his commencement part way
through the 2007 year. Refer to section B1 for fee structure details.

20 ANZ Annual Report 2008

1 Shares acquired through participation in Directors’ Share Plan. Value reflects
the price at which the shares were purchased on-market on 29 October 2007
(amortisation not applicable).
2 100% of the cash incentive vested during the financial year that performance relates to.
The possible range of short-term incentive (STI) payments is between 0 and 2 times target
STI. The 2008 STI awarded to M Smith as a percentage of target was 80% and was approvedby the Board on 21 October 2008. The below target STI payment reflects ANZ’s performancein 2008 (John McFarlane received 95% of his target STI in 2007).
3 As M Smith is a holder of a long stay visa, his Fixed Remuneration does not include
the 9% Superannuation Guarantee contribution, however he is able to elect voluntarysuperannuation contributions. For J McFarlane, the amount of $417,975 includes $300,000
additional employer contribution, agreed as part of his contract extension announced
26 October 2004. For J Morschel, superannuation guarantee contributions are paid to him
as cash in lieu.
4 Comprises $550,000 for the 3 month unexpired portion of J McFarlane’s employment
contract and a $365,261 pro-rata long service leave entitlement.

For personal use only	Executives: Based on direct reports of the CEO with key
responsibility for the strategic direction and managementof a major revenue-generating division or who control material
revenue and expenses.

of the Corporate Governance Report for more details about theCommittee’s role, and anz.com > about ANZ > Corporate Governance> ANZ Human Resources Committee Charter, which details the termsof reference under which the Committee operates). On a numberof occasions throughout the year, both the Board HR Committee
and management received external advice on matters relating toremuneration. The following advisors were used: Ernst & Young,
Hay Group, Freehills, and PricewaterhouseCoopers.

The Board Human Resources (HR) Committee has responsibility fordirector and executive remuneration and executive succession, andfor making recommendations to the Board on remuneration andsuccession matters related to the CEO (refer to pages 51 and 52

POSTEMPLOYMENTLONG TERMEMPLOYEEBENEFITS

Total
$

Super
contributions3$Long service
leave accrued
during the year$

783,000
782,880
239,984
228,362
252,956
233,992
272,984
261,000
264,974
146,470
287,000
269,400
286,257
273,759

13,283
12,797
13,283
12,797
13,283
12,797
13,283
12,797
13,2838,854
13,283
12,797
–
–

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

181,870

9,515

2,387,155
2,377,733

Termination
BENEFITS4SHARE-BASED PAYMENts5
Total amortisation
value of LTI options$

Total amortisation
value of LTI
Performance Rights$

Total amortisation
value of Sign-on
Award
$

Total
Remuneration6
$

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

796,283
795,677
253,267
241,159
266,239
246,789
286,267
273,797278,257
155,324300,283
282,197286,257
273,759

n/a

n/a

n/a

n/a

n/a

191,385

79,69882,354

n/a
n/a

n/a
n/a

n/a
n/a

n/a
n/a

n/a
n/a

2,466,853
2,460,087

5,966,567–

45,788––

1,839,734

5,111,391

12,963,480

5,296,471

417,975–

915,261

123,411––

8,353,722
7,674,204

79,698500,32945,788––915,261–
123,411

1,839,734–

5,111,391–

5 In accordance with the requirements of AASB 2 Share-based Payment, the amortisation
value includes a proportion of the fair value (taking into account market-related vesting
conditions) of all equity that had not yet fully vested as at the commencement of the financial
year. It is assumed that the options/performance rights will vest at the commencement of
their exercise period (i.e. the shortest possible vesting period is assumed). The fair value
is determined at grant date and is allocated on a straight-line basis over the expectedvesting period. The amount included as remuneration is not related to nor indicative of
the benefit (if any) that may ultimately be realised should the options/performance rights
become exercisable.
6 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the
consolidated entity in respect of directors’ and officers’ liability insurance contracts which
cover current and former KMP of the controlled entities. The total premium, which cannot be
disclosed because of confidentiality requirements, has not been allocated to the individuals
covered by the insurance policy as, based on all available information, the directors believethat no reasonable basis for such allocation exists.
7 $340,676 was paid under the ANZ Directors’ Retirement Scheme to D Gonski(retired 30 June 2007), based on the sale of shares relating to the Retirement Scheme.

6,753,11814
15,430,333
9,213,205

8 Amortisation value of options/rights as a percentage of total remuneration (as shown in
the Total column above) was 14% in 2008 for Mike Smith and 2% in 2007 for J McFarlane.
9 The amortisation value of LTI performance rights and the sign-on award for M Smith relates
to the grant of ANZ equity that was approved by shareholders at the 2007 Annual General
Meeting. Refer to section D1 for further details.
10 J McFarlane elected to use almost all of his cash salary to purchase shares under the
Directors’ Share Plan. The purchase dates were 30 October 2006, 29 January 2007
and 7 May 2007 for the 2007 year.
11 Other for J Ellis relates to car parking and office space.
12 Other for D Gonski relates to a non-monetary benefit received on retirement as a giftfrom the Board.
13 Other for M Smith relates to relocation benefits and professional service fees rendered
in respect of taxation matters.
14 Other for J McFarlane relates to a $1 million payment for the relinquishment of his
Performance Shares (refer to section D2.3 for further details), a $7,000 gift from the Board,$24,046 worth of professional service fees rendered in respect of taxation matters,
and reimbursement to J McFarlane of $93,461 for the additional tax liability on his UK Pension
Plan holdings arising as a result of Australian Foreign Investment Fund rules and J McFarlane’scontinuing Australian residency (in accordance with his contractual arrangements).

Remuneration Report 21

For personal use only

Section A: Remuneration Tables (continued)

TABLE 2: EXECUTIVE KEY MANAGEMENT PERSONNELREMUNERATION AND TOP 5 REMUNERATED
For the year ended 30 September 2008, remuneration
details of the KMP identified as executives of
the Group, and the five most highly remunerated
executives in the Company and the Group otherthan the Chief Executive Officer, are set out below:

SHORT-TERM
EMPLOYEE BENEFITS

Total
$

Super
contributions$

450,000
1,060,000

1,418,664
1,864,895

36,122
49,725

11,79961,963850,000
1,315,000

2,322,540
2,308,195

32,24661,4251,000,000
900,000

90,70556,600550,000
900,000

1,640,705
1,856,600

–
–

2008
2007

930,483
889,425

9,786
9,620

450,000
1,090,000

1,390,269
1,989,045

64,51755,5752008
2007

875,000
70,000453,456770

1,050,000–

2,378,456
70,770––P Hodgson11
Former Group Managing
Director, Institutional

2008
2007

852,120
808,456

8,905
9,620

–
850,000

861,025
1,668,076

53,33050,544

S Targett12
Former Group Managing
Director, Institutional

Financial
Year

Cash
salary/fees$

Non monetary
benefits1$

R EdgarSenior Managing Director

2008
2007

958,878795,275

9,786
9,620

B Hartzer
Group Managing Director, Personal

2008
2007

1,460,741
931,232

G Hodges
Chief Executive, ANZ National Bank
Limited (New Zealand)

2008
2007

P Marriott
Chief Financial Officer

A Thursby 10
Group Managing Director,
Asia Pacific and Acting GroupManaging Director Institutional

Total cash
incentive2,3$

postemployment

Current Executives

Former Key Management Personnel

2007983,675–

550,000

1,533,675

61,425

Total of all Executive KMPs

2008
2007

6,077,222
5,378,063

584,437
148,1933,350,000
5,765,000

10,011,659
11,291,256

186,215
278,694

Total of all Disclosed Executives

2008
2007

6,077,222
5,378,063

584,437
148,1933,350,000
5,765,000

10,011,659
11,291,256

186,215
278,694

Commentary on changes between 2007 & 2008

NEW business model for 2009 financial year

Overall, the year-on-year total remuneration (with and without
Peter Hodgson’s termination benefits) has decreased between
2007 and 2008. This can be attributed to the following:

From the beginning of the 2009 financial year (i.e. 1 October 2008),
ANZ has organised around its three geographies (Australia,
New Zealand and Asia Pacific) and its global Institutional clientbusiness. As a result, the position titles and roles for current
Executive KMP from 1 October 2008 are as follows: B Hartzer –CEO Australia (and Global segment lead for Retail), G Hodges –CEO New Zealand, A Thursby – CEO Asia Pacific (and acting GroupMD Institutional until a permanent appointment is made),
B Edgar – Deputy CEO and P Marriott – CFO (no change).

	There was a reduction in overall STI allocation (as % of target STI)
for executive KMP, to reflect ANZ’s 2008 performance. 100%of the short-term incentive amounts disclosed in 2007, weredelivered as 100% cash. As a large portion of STI is now deferred
as shares which are not granted until post year end, only the
cash component of the STI allocated has been expensed in 2008(refer to section C4.1). The amortisation of deferred STI equity
will commence from the 31 October grant date.
	The majority of amortised equity from historical STI/LTI programs
vested in the early stages of the 2008 financial year, therefore asmaller proportion of equity was amortised in 2008 (relative to 2007).

Other year-on-year variations include:	A Thursby 2007 amount relates only to the 1 month period he
was a KMP (i.e. commenced 3 September 2007).
	$3.2 million total remuneration for S Targett included in 2007
remuneration aggregate (and not in 2008).
	Fixed remuneration changes reflect individual performanceand outcomes from the annual market analysis.
22 ANZ Annual Report 2008

For personal use only

LONG-TERMEMPLOYEE BENEFITSSHARE-BASED PAYMENTS5
Total
amortisation
value ofLTI shares$

Total
amortisation
value of
LTI options$

Total
amortisation
value of LTI
performancerights$Totalamortisationof other equity
allocations6$

Termination
benefits7$

Total
excludingtermination
benefits$

Grand Total
Remuneration 8,9Retirement
benefit accrued
during year4$

Long service
leave accrued
during the year$

Total
amortisation
value of
STI shares$

19,2983,297

59,677
13,278–31,92821,516273,389

4,155
79,418506,025
419,586––––

2,065,457
2,735,516

2,065,457
2,735,516––

74,902
21,938–30,613

6,039
93,063

5,817
91,008780,312513,944––––3,221,856
3,120,186

3,221,856
3,120,186

3,035
610

44,41529,940–23,5694,977
79,066

4,795
77,386

701,280
466,213––––2,399,207
2,533,384

2,399,207
2,533,384––

20,871
25,533–39,638

5,607
97,621

5,402
95,807

709,626
474,537––––

2,196,292
2,777,756

2,196,292
2,777,756––

14,377
–

–
–

–
–

–
–

174,414–365,291
24,763––2,932,538
95,5332,932,538
95,533–––52,121–
38,553

16,732
100,838

1,259
17,809200,327
199,778––

1,334,282–

1,132,673
2,127,719

2,466,955
2,127,71913$–

18,283–44,85743,215482,864

1,003,152–

3,187,471

3,187,471

22,333
3,907

214,242
161,093–
164,301

54,871
688,834

21,428404,643

3,071,984
2,556,922

365,291
1,027,915

1,334,282–

13,948,023
16,577,565

15,282,305
16,577,565

22,333
3,907

214,242
161,093–
164,301

54,871
688,834

21,428404,643

3,071,984
2,556,922

365,291
1,027,915

1,334,282–

13,948,023
16,577,565

15,282,305
16,577,565

1 Non-monetary benefits generally consist of salary packaged items such as car parking andnovated lease motor vehicles. For G Hodges, his non-monetary benefits relate to a housing
allowance and education expenses. For A Thursby, non-monetary benefits relate to costs
associated with his relocation to Melbourne and airfares.
2 For the 2007 year, total cash incentive relates to the full incentive amount, and for the 2008
year, the disclosed incentive relates to the cash component only, with the deferred equity
component to be amortised from the 31 October grant date in the 2009 Remuneration
Report (refer to section C4.1 for details). The cash incentive component was approved by
the Board on 21 October 2008. 100% of the cash incentive awarded in both 2007 and 2008
vested to the person in the applicable financial year.
3 The possible range of short-term incentive (STI) payments is between 0 and 2 times target
STI. The actual incentive received is dependant on ANZ Group, division and individual
performance (refer to C4.1 for more details). The 2008 STI awarded (cash and equity
component) as a percentage of target STI was: B Hartzer 83% (2007: 125%); R Edgar 58%(2007: 125%); G Hodges 75% (2007: 100%); P Marriott 58% (2007: 115%); A Thursby
181%; P Hodgson 0% (2007: 100%).
4 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to
November 1992, R Edgar and G Hodges are eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons.
The Retirement Allowance is calculated as follows: 3 months of preserved notional salary(which is 65% of Fixed Remuneration) plus an additional 3% of notional salary for each yearof full-time service above 10 years, less the total accrual value of long service leave(including taken and untaken).
5 In accordance with the requirements of AASB 2, the amortisation value includes a proportionof the fair value (taking into account market-related vesting conditions) of all equity that
had not yet fully vested as at the commencement of the financial year. It is assumed that theoptions/performance rights will vest at the commencement of their exercise period (i.e. theshortest possible vesting period is assumed) and that deferred shares will vest after 3 years.
The fair value is determined at grant date and is allocated on a straight-line basis over the
3-year vesting period. The amount included as remuneration is not related to nor indicativeof the benefit (if any) that may ultimately be realised should the options/performance rights
become exercisable. For deferred shares, the fair value is the volume weighted average priceof the Company’s shares traded on the ASX on the day the shares were granted.

6 Amortisation of other equity allocations for S Targett relates to the grant of deferred shares
beginning on 11 May 2004 (four tranches to the value of $700,000 each issued at 6 monthintervals in May and November in 2004 and 2005) and hurdled A options (refer to section
F10.1 for performance hurdle details) to compensate S Targett for the loss of access toequity as a result of his resignation from his previous employer. Amortisation of other equity
allocations for A Thursby relates to the allocation of 3 year deferred shares (one tranche in2007 and 2008 to the value of $1m each year) to compensate for equity foregone from his
previous employer.
7 Termination benefits for P Hodgson include 12 months pay in-lieu of notice, as per
employment agreement (refer to section E), and annual and long service leave entitlements.
8 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated
entity in respect of directors’ and officers’ liability insurance contracts which cover current
and former KMP of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals coveredby the insurance policy as, based on all available information, the directors believe that noreasonable basis for such allocation exists.
9 Amortisation value of options and rights as a percentage of total remuneration was:B Hartzer 24% (2007: 19%); R Edgar 25% (2007: 18%); G Hodges 30% (2007: 21%);
P Marriott 33% (2007: 21%); A Thursby 6%; P Hodgson 8% (2007: 17%); S Targett(2007: 21%).
10 A Thursby commenced employment with ANZ in the position of Group Managing Director,
Asia Pacific on 3 September 2007, and took on the additional role of Acting Group Managing
Director Institutional on 22 August 2008. As A Thursby is a holder of a long stay visa,
his Fixed Remuneration does not include the 9% Superannuation Guarantee contribution,
however he is able to elect voluntary superannuation contributions.
11 P Hodgson ceased as the Group Managing Director Institutional on 22 August 2008,
and his employment with ANZ was terminated on 29 August 2008. P Hodgson was theChief Risk Officer for the period 1 December 2004 to 7 June 2007, and commenced in
the position of Group Managing Director Institutional on 8 June 2007.
12 S Targett ceased as the Group Managing Director, Institutional on 7 June 2007,
and his employment with ANZ ended on 7 June 2008.
13 P Hodgson’s 2007 Total Remuneration is $186,510 (i.e. amortised amount) less thanwhat was disclosed in 2007 due to the forfeiture of his Performance Rights on cessationof his employment.

Remuneration Report 23

For personal use only

Section B. Non-executive Directors’ Remuneration
B1. NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
Non-executive Directors’ (NEDs) fees are reviewed annually by the Board HR Committee and are determined based on advice fromexternal advisors and with reference to fees paid to other NEDs of comparable companies.
NEDs receive a fee for being a director of the Board, and additional fees for either chairing or being a member of a committee. Work on
special committees may attract additional fees of an amount considered appropriate in the circumstances. An additional fee is also paid if
a NED serves as a director on a subsidiary board. NEDs do not receive any performance/incentive payments and are not eligible to participate
in any of the Group’s incentive arrangements.
Effective 1 October 2007, NED fees and Committee membership fees (excluding HR Committee) were increased based on an independent
assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies and forecast market movements.
The Chairman’s fee remained unchanged for 2008. The fees reflect the increased accountability and time commitment of NEDs, largely driven
by the increased corporate governance, regulatory requirements and complexities of operating a global business.
The fee structure is disclosed in Table 3 below:
TABLE 3
Role

Chairman
Non-Executive Director
Committee Chair (Risk & Audit)
Committee Chair (HR)Committee Chair (Governance & Technology)
Committee Member (Risk & Audit)
Committee Member (HR)Committee Member (Governance & Technology)

2007/08 Fees$

2006/07 Fees$

783,000
200,000
52,00048,00030,00025,00021,00010,000783,000
192,000
48,00048,00028,00021,00021,0008,400

For details of remuneration paid to directors for the year ended 30 September 2008, refer to Table 1 in section A of this Remuneration Report.

Increase to NED Fee cap

NED Shareholding Guidelines

The current total of NED fees (including superannuation
contributions) is within the maximum annual aggregate limit
agreed to by shareholders at the 2005 Annual General Meeting($3 million, excluding superannuation benefit payouts andretirement benefits). The 2005 increase to the NEDs’ fee cap was
primarily to accommodate for the fee adjustment to compensate forremoval of the Directors’ Retirement Scheme. It is proposed that the
NED fee cap be increased by $500,000, taking the maximum annual
aggregate amount to $3,500,000. The fee increase is considerednecessary in order to allow for the appointment of additional
directors to the Board to:

NEDs have agreed to accumulate ANZ shares, over a five-year period,to the value of 100% (200% for Chairman) of the base annual NED
Fee (i.e. $200,000 for 2007/2008) and to maintain this shareholding
while a director of ANZ. NEDs have agreed to apply up to 25% of theirbase fee annually through the Directors’ Share Plan or other means,
towards the purchase of ANZ shares in order to achieve/maintain thedesired holding level. This guideline was approved by the Board in
September 2005.

enable appropriate succession at the Board; and	ensure that the Board (and its Committees) continue to haveavailable Directors with the appropriate mix of skills, expertiseand experience, taking account of the nature and location of theCompany’s business and operations.

The increase to the NED fee pool will be subject to shareholder
approval which will be sought at the 2008 Annual General Meeting.
It is important to note that there will not be an increase to the current
NED fees paid to directors in 2008/09. The proposed increase to
the NED fee cap will however provide the Company the flexibility toensure that a high calibre Board of appropriate size continues toserve the Company and its members effectively, as well as enabling
appropriate succession management.

24 ANZ Annual Report 2008

B2. NON-EXECUTIVE DIRECTORS’ RETIREMENT POLICYThe NED retirement scheme was closed effective 30 September
2005. Accrued entitlements relating to the ANZ Directors’ Retirement
Scheme were fixed at 30 September 2005 and NEDs had the option
to convert these entitlements into ANZ shares. Such entitlements,
either in ANZ shares or cash, will be carried forward and transferredto the NED when they retire (including interest accrued at the 30 day
bank bill rate for cash entitlements).
The accrued entitlements fixed under the ANZ Directors’ Retirement
Scheme as at 30 September 2005 are as follows:
C Goode – $1,312,539; G Clark – $83,197; J Ellis – $523,039;
M Jackson – $487,022; D Meiklejohn – $64,781; J Morschel – $60,459.

For personal use only

B3. DIRECTORS’ SHARE PLAN
The Directors’ Share Plan (the plan) is available to both non-executive
and executive directors. Directors may elect to forego remuneration
to which they may have otherwise become entitled and receive
shares to the value of the remuneration foregone, and therefore
the shares acquired are not subject to performance conditions.
Participation in the plan is voluntary. Shares acquired under theplan are purchased on market and are subject to a minimum 1 year
restriction, during which the shares cannot be traded. In the eventof serious misconduct, all shares held in trust will be forfeited. All
costs associated with the plan are met by the Company.

Figure 1 below shows the relative mix of Fixed, STI and LTI at target
payment levels for executive KMP. The remuneration structure provides
for upper quartile variable reward for significant out performance,and significantly reduced payment for underperformance. In this way
the remuneration structure is heavily weighted towards “reward for
performance”.

Figure 1: 2008 Target Reward Mix1
37%

26%

19%

18%

Deferred equity %LTI %Section C. Executive Remuneration Structure
C1. REMUNERATION GUIDING PRINCIPLES

Fixed Remuneration %Cash STI %ANZ’s reward policy, approved by the Board, shapes the Group’s
remuneration strategies and initiatives.

1 2008 target reward mix for current executive KMP pertains to R Edgar, B Hartzer, G Hodges,
P Marriott and A Thursby.

The following principles underpin ANZ’s reward policy for executive
KMP, defined on pages 22 and 23 (including company secretaries
and senior managers):

C3. FIXED REMUNERATION

1. Focus on creating and enhancing value for all ANZ stakeholders;
2. Differentiation of individual rewards in line with ANZ’s culture of
rewarding for out performance;
3. Significant emphasis on “at risk” components of total rewards; and4. The provision of a competitive reward proposition to successfully
attract, motivate and retain the highest quality individuals required
to deliver ANZ’s business and growth strategies.
Shareholding Guidelines
Direct reports to the CEO are expected to accumulate ANZ shares overa five year period, to the value of 200% of their Fixed Remunerationand to maintain this shareholding while an executive of ANZ. The
next most senior executives are expected to accumulate ANZ sharesto the value of 100% of their Fixed Remuneration and to maintainthis shareholding while an executive of ANZ. This guideline wasintroduced in June 2005.

C2. REMUNERATION STRUCTURE OVERVIEW
The executive remuneration program and structure detailed in
Section C reflects the remuneration of KMP (excluding the CEO
and NEDs). The program aims to differentiate remuneration on thebasis of achievement against group, business unit and individual
performance targets which are aligned to sustained growth inshareholder value using a balanced scorecard approach. The
executive remuneration program also complies with the ASX
Corporate Governance Principles. The program comprises
the following components which are benchmarked against thefinance market median:	Fixed Remuneration component: salary, non-monetary benefits
and superannuation contributions (Refer to C3).
	Variable or “at risk” component (Refer to C4):
– Short-Term Incentive (STI); and– Long-Term Incentive (LTI).

41% comprises cash
27%
32%
Fixed Remuneration generally
salary, asuperannuationand the remainder as nominatedLarge Senior Executivecontribution,
Roles2
benefits (e.g. novated car leases, additional superannuation
61% contributions towards
26%
13%
contributions, car parking, child care andthe Employee Share Save Scheme). Fixed Remuneration is reviewed
annually based on individual performance and market data.

Fixed Remuneration at ANZ operates with a midpoint targeted to
the local market median being paid in the finance industry in therelevant global markets in which ANZ operates, and a range aroundthis midpoint.

C4. VARIABLE REMUNERATION
Variable remuneration forms a significant part of executives’ potential
remuneration (around 63% for 2007 and 2008), providing an at-risk
component that is designed to drive performance in both the shortterm (annually) and in the medium and long-term (3 years plus).
As a result of our ongoing review of the executive remuneration
program, a portion of STI will now be delivered in the form of deferredshares and deferred options. Therefore, while the overall proportionof variable target remuneration remains unchanged, the proportionof the variable component paid as cash reduces and the proportion
delivered as ANZ equity has increased.
The rationale for the revised variable remuneration strategy is toplace an increased emphasis on having a variable structure that is
flexible, continues to be performance linked, has significant retention
elements and motivates executives to drive continued performanceover the longer term. These changes achieve this, whilst balancing
the needs of ANZ, the executive and shareholders as follows:
ANZ
Provides a significantly greater retention element
	Places significant focus on annual performance as well as directing
the executives to focus on sustained share price growth over the
longer term	Maintains a focus on both absolute and relative share priceperformance

Remuneration Report 25

For personal use only

Executive
Provides greater ability to influence STI outcome (line-of sight)
	Introduces options as a means to provide a leveraged reward element
	Provides a cash component which is still meaningful

Shareholder	Places heavier weighting on ANZ equity, thereby increasing
shareholder alignment
 rovides performance linkages both in determining overallP
quantum and delivery of variable pay nsures LTI performance measure remains focused on relativeE
Total Shareholder Return against peers

As specified in the ANZ Global Employee Securities Trading andConflict of Interest Policy, equity allocated under ANZ incentive
schemes must remain at risk until fully vested (in the case of Deferred
Shares) or exercisable (in the case of Options or Performance Rights).
As such, it is a condition of grant that no schemes are entered intothat specifically protect the unvested value of Shares, Options andPerformance Rights allocated. Doing so would constitute a breach of
the grant conditions and would result in the forfeiture of the relevant
Shares or Options.
To monitor adherence to this policy, ANZ’s executive KMP (includingCEO) are required to sign an annual declaration stating that they
have not entered into (and are not currently involved in) any schemes
to protect the value of their interests in any unvested ANZ securities.
Based on the 2008 declarations, we can advise that executive KMP(incuding CEO) are fully compliant with this policy.

C4.1 Short-Term Incentives
ANZ’s Short-term incentive (STI) approach supports ANZ’s strategic
objectives by providing rewards that are significantly differentiatedon the basis of achievement against performance targets. ANZ’s main
STI plans are reviewed and approved by the Board HR Committee.
Determination of STI Levels
The size of the overall pool available is based on an assessment of
the financial performance of the Group, with this pool then spread
between the Divisions based on their relative performance against
a balanced scorecard of financial and qualitative measures. The
Board HR Committee is required to approve the STI Group andDivision outcomes and the distribution of the STI pool amongst
the Divisions. Each executive has a target STI which is determinedaccording to market relativities. The size of the actual STI payment
made at the end of each financial year to individuals may be at,above or below the target and this will be determined according to
ANZ Group, Division and Individual Performance aligned with ANZ’s
overall strategy.
Individual performance objectives include a number of qualitativeand quantitative measures which may include:	Financial Measures including: Revenue Growth, Net Profit After
Tax Growth and Operating Costs
	Customer Measures including: Customer Satisfaction, Shareof Wallet and Market Share	Process Measures including Process Improvements andCost Benefits

26 ANZ Annual Report 2008

	People Measures including Staff Turnover, Diversity Targets
and Performance Management
	Behaviour, Risk, Compliance Measures/Standards.
The specific targets and features relating to these qualitative andquantitative measures have not been provided in detail due to theircommercial sensitivity.
The performance of relevant executives against these objectives isassessed at the end of the year by the Board HR Committee, as per the
Board HR Committee Charter (refer to anz.com > about ANZ > Corporate
Governance > ANZ Human Resources Committee Charter, which details
the terms of reference under which the Committee operates).
Mandatory STI Deferral
For the 2008 remuneration review and beyond, the following tiered
STI deferral approach will apply:	STI up to AUD 200,000 paid in cash1
	25% of STI amounts above AUD 200,000 to be deferred for 1 year
(half allocated in the form of shares2 and the other half as options3)
	25% of STI amounts above AUD 200,000 to be deferred for 2 years(half allocated in the form of shares2 and the other half as options3)
	The balance (i.e. 50%) of STI amounts above AUD 200,000 to be
paid as cash1
The mix of options and shares for the mandatory STI deferral provides
a strong retention element in both flat and growth economic cycles.
Options contain an in-built price hurdle given that they are designed
to reward for share price growth. That is, options can provide benefits
to the extent the ANZ share price increases above the option exercise
price. Options deliver no value where the ANZ share price is equal
to or below the option exercise price during the exercise period.
As the incentive amount has already been earned, there are no
performance measures attached to the shares and options; rather,
the delivery of STI in the form of equity provides a balance between
retention based equity and LTI performance based equity. The
target STI award level for current executive KMP is 120% of Fixed
Remuneration in 2008 with a maximum STI award of 2 times target
STI. As shown in Figure 3 (page 28), 2008 STI payments for disclosed
executive KMP (incl. CEO) are aligned with the performance of ANZ,
with average STI payments equating to 76% of target STI (on average).

1 Executives are able to elect to take any cash bonus amounts they may be awarded as cash,
super, equity (shares and/or options) or a mix of these.
2 G Hodges will receive share rights rather than shares due to taxation implications in
New Zealand. A share right effectively provides a right in the future to acquire a share in
ANZ at nil cost to the employee. The right value at grant is discounted (relative to the valueof an ANZ share at grant), due to the fact that dividends will not be received during thedeferral period.
3 B Hartzer will receive shares in the place of options due to taxation implications in the
United States of America, as a result of his US citizenship.

For personal use only

C4.2 Long-Term Incentives
The long-term incentives (LTIs) are designed to link a significant
portion of executives’ remuneration to the attainment of sustained
growth in shareholder value. Consistent with the CEO, LTI is delivered
to executive KMP as 100% Performance Rights, with a single longterm performance measure (refer to section F10 for details of legacy
LTI programs). A Performance Right is a right to acquire a share at nil
cost, subject to meeting time and performance hurdles. Performance
Rights are designed to reward executives for share price growthdependent upon the Company’s Total Shareholder Return (TSR)
outperforming peers. TSR represents the change in the value of ashare plus the value of reinvested dividends paid. TSR was chosen
as the most appropriate comparative measure as it focuses on thedelivery of shareholder value and is a well understood and tested
mechanism to measure performance. The conditions under which
Performance Rights are granted are approved by the Board inaccordance with the rules of the ANZ Share Option Plan. In the eventof a takeover or a scheme of arrangement, the ANZ Share Option
Plan specifies that the Board has absolute discretion to permit theexercise of options or rights. If a company obtains control of ANZ andboth the acquiring company and ANZ agree, ANZ may on the exercise
of options, provide shares of the acquiring company (or its parent)to the same value as the ANZ shares that would have been issued.
Each Performance Right has the following features:	Performance Rights held by eligible executives will be tested once
only against the performance hurdle at the end of three years;	Subject to the performance hurdle being met, the executive has
a two-year exercise period that commences three years after the
grant date;	Upon exercise, each Performance Right entitles the executive to one
ordinary share;	In case of dismissal for serious misconduct, Performance Rights
are forfeited;	In case of resignation or termination on notice, unless the Board
determines otherwise, only Performance Rights that become
exercisable by the end of the notice period may be exercised; and	In case of death or total & permanent disablement, the performance
hurdle is waived and a grace period is provided in which to exercise
all Performance Rights.

The proportion of Performance Rights that become exercisable
will depend upon a single point testing of the TSR achieved by ANZ
relative to the companies in the comparator group (shown below)
at the end of a three-year period. Performance equal to the median
TSR of the comparator group will result in half the Performance
Rights becoming exercisable. Performance above median will resultin further Performance Rights becoming exercisable, increasing
on a straight-line basis until all of the Performance Rights become
exercisable where ANZ’s TSR is at or above the 75th percentile of
TSRs in the comparator group. An averaging calculation will be used
for TSR over a 90 day period for start and end values in order toreduce the impact of share price volatility.

Where median performance is achieved, executives’ total
remuneration will typically be below market median for the financial
services industry. 75th percentile performance is required for fullvesting which enables executives to receive the full value of their
LTI. To ensure an independent TSR measurement, ANZ engages theservices of an external organisation (Macquarie Financial Services)
to calculate ANZ’s performance against the TSR hurdle.
Comparator GroupThe peer group of companies against which ANZ’s TSR performanceis measured, comprises the following companies:
AMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
The companies in this comparator group were chosen because they
represent ANZ’s key competitors in the financial services industry, arean appropriate reference group for investors and are of sufficient sizeby market capitalisation and weight in ASX Top 50.
Size of LTI Grants
The size of individual LTI grants for executive KMP is determined byan individual’s level of responsibility, performance and the assessed
potential of the executive. The target LTI for disclosed executives isaround 18% of the individual’s target reward mix and around 50%
of Fixed Remuneration. Executives are advised of their LTI dollar value,
which is then converted into a number of Performance Rights basedon a valuation. ANZ engages external experts (PricewaterhouseCoopers
and Mercer) to independently value the Performance Right, taking
into account factors including the performance conditions, share pricevolatility, life of instrument, dividend yield and share price at grant
date. The higher acceptable value is then approved by the Board HR
Committee as the allocation value. LTI allocations are made annuallyaround the end of October. The following example uses the October2007 allocation value.
ExampleExecutive KMP granted LTI value of $500,000
Approved Allocation Valuation is $12.96 per Performance Right$500,000 / $12.96 = 38,580 Performance Rights allocated to
executive KMP

Remuneration Report 27

For personal use only

C5. Performance of ANZ
Table 4 shows ANZ’s annual performance over the five-year period spanning 1 October 2003 to 30 September 2008. The table illustrates theimpact of ANZ’s performance on shareholder wealth, taking into account dividend payments, share price changes and other capital adjustments
during the financial year.
TABLE 4

FY 2008

FY 2007

FY 2006

FY 2005

FY 2004*

Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (%)

170.4
3,319
136
18.75
-33.5

224.1
4,180
136
29.70
15.6

200.0
3,688
125
26.86
17.1

169.5
3,175
110
24.00
32.6

153.1
2,815
101
19.02
17.0

* Figures based on previous AGAAP.

In Table 4, ANZ’s TSR (which includes share price growth, dividends and other capital adjustments) has been shown for each individual
financial year between 2004 and 2008. Figure 2 compares ANZ’s TSR performance against the median TSR of the LTI comparator group andthe S&P/ASX 200 Banks Accumulation Index over the 2004 to 2008 measurement period. Cumulative TSR has been baselined at 100%.
340
320

Cumulative Total shareholder return % (baseline of 100%)

300
280
260
240

160

2,983

3,133

180
2,858

Figure 2: ANZ 5-Year Cumulative Total
Shareholder Return Performance

3,560

200

3,887
X,XXX

220

140

ANZ Cumulative TSRMedian of Peer Group
Upper Quartile of Peer Group
S&P/ASX 200 Banks
Accumulation Index

120
125

07

08

3,887
X,XXX

Cash profit (IFRS)2
Average STI payments against target

2,983

2,858

3,133

3,560

Cash profit (AGAAP)1

Target STI% of target STI paid
to executive directors
and disclosed executives

100
75
109%

111%

112%

110%

76%

04

05

06

07

08

Figure 3 illustrates the relationship between the average actual STI payments
against target and the Group’s performance measured using cash earnings
over the last 5 years. The average STI payments for each year are based on
those executives (including the CEO) disclosed in each relevant reporting
period. As illustrated in the chart, the average STI payments are generally
in alignment with the cash earnings trend, with the 2008 STI payments (asa percentage of target STI) trending down with the decrease in cash earnings.
1 Profit excluding goodwill, significant items and NBNZ incremental integration costs.
2 Profit adjusted for non-core items, IFRS adjustments and preference share dividends.

Figure 3: ANZ – Cash Profit & Average STI payments ($m)
Cash profit (IFRS)2

Sep08

06

Apr 0876%

Apr 07110%

Oct 06

05

75

112%

Apr 0604

Oct 05111%

Apr 05

109%

Figure 3: ANZ – Cash Profit & Average STI payments ($m)

125

28 ANZ Annual Report 2008Cash profit (AGAAP)1

Performance period end date100

Oct 04

Apr 04

Oct 03% of target STI paid
80 to executive directors
and disclosed executives

Oct 07100

D1.1 Sign On Award

This section details the remuneration arrangements for M Smith,
who commenced as CEO on 1 October 2007 and J McFarlane whoceased as CEO of ANZ on 30 September 2007. The CEO is the only
executive director at ANZ.

The Board agreed to provide M Smith $9 million compensation inconsideration for remuneration foregone from his previous employer
on joining ANZ. As per the terms of M Smith’s contract, he elected
at the commencement of his employment to receive 100% of thiscompensation in the form of ANZ Deferred Shares. Shareholders
approved at the 2007 Annual General Meeting for M Smith’s sign-on
award, to be held in trust until the end of the relevant vesting period.

For personal use only

Section D. Chief Executive Officers’ Remuneration

D1.REMUNERATION OVERVIEW FOR M Smith
M Smith commenced as CEO and Executive Director of ANZ on
1 October 2007 on a rolling twelve month contract with a minimum
term of three years. The key terms of his employment arrangement
are summarised below. They are in line with industry practice (basedon external advice on Australian and international peer company
benchmarks) and ASX Corporate Governance Principles.
Fixed Remuneration: A fixed component of $3 million per annum
which consists of salary, benefits and voluntary superannuation
contributions. M Smith’s Fixed Remuneration will be constant forthree years, and will be reviewed annually thereafter.
Short-Term Incentive: M Smith’s target variable STI is $3 million
per annum (i.e. 100% of Fixed Remuneration). The Board approved
M Smith’s 2008 balanced scorecard and then assessed his
performance against these objectives at the end of the 2008 year
to determine the appropriate incentive (relative to target). As per the
Board HR Committee Charter, robust performance measures and targets
for the CEO that encourage superior performance and ethical behaviour
are recommended by the Board HR Committee to the full Board. The key
objectives for 2008 included a number of quantitative and qualitative
measures, aligned with ANZ’s strategy, which included (but were notlimited to) financial goals, risk management, strategy development,
strengthening the management bench, and people/culture measures.
Long-Term Incentive: M Smith’s LTI (as approved by shareholders at the2007 Annual General Meeting), consists of 3 tranches of Performance
Rights, each to a maximum value of $3 million. The performance
periods for each tranche begin on the date of grant of 19 December
2007 and end on the 3rd, 4th and 5th anniversaries respectively (i.e.
only one performance measurement for each tranche). The level ofvesting for each tranche will be based on ANZ Total Shareholder Return(TSR) performance against a comparator group of companies consistent
with the senior executive LTI program (refer to C4.2). Refer to section
C4.2 for change of control provisions in relation to these Rights.
The remuneration for M Smith for the 2008 year is set out in Table 1
in section A and the mix of remuneration for M Smith is illustrated in
Figure 4.

The grant date for the sign on award was 19 December 2007, with
one third of the sign on award vesting at each of the 1st, 2nd and3rd anniversaries from the commencement of his employment as CEO.
Given the purpose of the sign-on award for M Smith is to compensate
him for remuneration foregone, the ANZ Deferred Shares are notsubject to any performance hurdles. The allocation of ANZ Deferred
Shares and the time vesting component, will however strengthen thealignment of M Smith’s interests with shareholders.

D1.2 Termination Benefits
M Smith or ANZ may terminate the employment agreement by
12 months’ written notice. If ANZ terminates M Smith’s employment
within the first 3 years, ANZ will give M Smith the greater of 12months’ written notice or notice equal to the unexpired term of three
years from commencement as CEO. ANZ may elect to pay in lieu allor part of the notice period based on M Smith’s Fixed Remuneration.
In circumstances of serious misconduct, M Smith is only entitled to
payment of Fixed Remuneration up to the date of termination.
In relation to M Smith’s LTI (Performance Rights) and sign-on award thefollowing will apply:	Resignation by M Smith: All unexercised Performance Rights andunvested sign-on award will be forfeited;	Termination on notice by ANZ: All Performance Rights whichhave vested or vest during the notice period will be retained andbecome exercisable; all Performance Rights which have not yet
vested will be retained and will vest and become exercisable
subject to the relevant time and performance hurdles being
satisfied. Sign-on award will vest in full;	Termination without notice by ANZ in the event of serious
misconduct: All Performance Rights and sign-on award will
be forfeited; and	Death or total and permanent disablement: All Performance Rights
and sign-on award will vest.

D1.3 Relocation

Figure 4: Target Reward Mix for Chief Executive Officer, M Smith1
1/3

Fixed Remuneration %

1/3
STI %

1/3

Costs associated with M Smith’s relocation to Melbourne were
paid consistent with ANZ’s international relocation policies. Certain
relocation expenses will also be paid in the event of termination of
his employment.

LTI %1 The target reward mix for M Smith does not include the $9m sign-on award (refer to D1.1)
given that it relates to remuneration forgone from his previous employer on joining ANZ.

Remuneration Report 29

D1.5 Shareholding Guideline

The Board recently reviewed the contract and retention arrangementsof M Smith to ensure that they continue to be market competitive.
This is particularly important in the current global financial markets,as the attraction of talented and globally experienced banking
executives is in strong demand. Following this review, the Board
considers it reasonable and appropriate to grant M Smith 700,000
Options on 18 December 2008, subject to shareholder approval at
the 2008 AGM. The rationale for the grant of Options to M Smith isas follows:

The CEO of ANZ is expected to accumulate ANZ shares, over a five
year period, to the value of 200% of his Fixed Remuneration and tomaintain this shareholding while CEO of ANZ.

For personal use only

D1.4 Grant of options to M Smith	The grant of Options recognises M Smith’s performance inestablishing a solid foundation to enable ANZ to achieve its longer
term vision. M Smith has demonstrated very strong internal andexternal leadership during the significant challenges the Company
has faced over the last year, and many of the reasons for ANZ’sfinancial results are attributable to decisions made prior to
M Smith’s appointment.
	Options will help to drive a longer term focus on sustained shareprice growth, thereby strengthening the alignment of M Smith’sinterests with shareholders.
	Using Performance Rights as part of the long-term incentive
program and this special grant of Options for retention purposes,
provides a strong motivation and retention element.

As Options are designed to reward for share price growth, the greater
the increase in ANZ’s share price, the greater the leverage opportunityfor M Smith and the greater the benefit to shareholders. Optionsdeliver no value where the ANZ share price is equal to or below the
Option exercise price during the exercise period.
Options will be available for exercise after the three year time based
hurdle has been met, with the Option exercise price being equal tothe market value of ANZ shares at the date the Options are granted.
Upon exercise, each Option entitles the holder to one ordinary ANZ
share. Once an Option has been exercised, it will no longer be subject
to forfeiture.
M Smith must remain employed with ANZ during the 3 year time
based hurdle to exercise vested Options at the end of the 3 year
period. Subject to the terms set out below M Smith must also be
an employee of ANZ at the time of exercise of the Options. If this
employment condition is not satisfied all Options which have notvested or been exercised at the date of cessation of employment will
be forfeited. The only exception to this employment condition is in thecase of death or total and permanent disability where all Options willvest and may be exercised. In the case of resignation after the 3 year
period, M Smith will forfeit any vested unexercised Options at the point
notice of resignation is given by M Smith. In the case of termination
on notice after the 3 year period, M Smith will be provided a 12 month
grace period to exercise any vested unexercised Options.

30 ANZ Annual Report 2008

M Smith currently has around 100% of his Fixed Remuneration invested or beneficially held shares. We anticipate that M Smith willachieve the 200% guideline by 1 October 2009, when further shares(related to his sign on award) vest.

D2.REMUNERATION OVERVIEW FOR former ceo, J McFARLANE
D2.1 Contract Terms
On 5 December 2006, the Company announced an extension to theterms of J McFarlane’s 26 October 2004 contract (which was also an
extension of his contract dated 23 October 2001). The contract was
extended by 3 months to 31 December 2007 (from 30 September2007) to provide flexibility for orderly succession at ANZ.
The remuneration of J McFarlane for the year ended 30 September
2007 is set out in Table 1 in section A. The structure of J McFarlane’s
remuneration for the purposes of the 2007 financial year disclosures
was in accordance with his employment agreement and was asfollows:
Fixed Remuneration: Consisted of salary, benefits andsuperannuation contributions. Since October 2003, J McFarlane
elected to receive almost all of his Fixed Remuneration in the formof shares purchased under the Directors’ Share Plan.
Short-Term Incentive: The Board assessed J McFarlane’s performanceagainst his balanced scorecard at the end of the year to determine
the appropriate incentive relative to target.
Long-Term Incentive: J McFarlane’s Long-Term Incentive wasmade up of Hurdled Options and Performance Shares as approvedby shareholders at the 2001 and 2004 Annual General Meetings
respectively. No long-term incentive equity was issued to
J McFarlane in the 2007 financial year.

D2.2 Participation in Equity Programs
Hurdled Options:
At the 2001 Annual General Meeting, four tranches of options wereapproved for granting by the Board: 500,000 in 2001; 1,000,000
in 2002; 1,000,000 in 2003 and 500,000 in 2004. Hurdles specificto these option grants are indicated in section F10.1 (Hurdled A).

Performance Shares:
175,000 Performance Shares were issued to J McFarlane on
31 December 2004 as part of his 26 October 2004 contract, as
approved by shareholders at the 2004 Annual General Meeting.
No dividends were payable on the shares until vesting. Vesting
was subject to time (i.e. 2 year deferral) and performance hurdles
being satisfied as detailed in section F10.3.

For personal use only

Directors’ Share Plan:
J McFarlane participated in the Directors’ Share Plan, which is
explained in section B3.
Please refer to section F for details of equity grants and holdings.

D2.3 Termination Benefits
On J McFarlane’s departure on 30 September 2007, he received
the following:

Contractual and Statutory Payments
J McFarlane received a payment of $550,000 (equal to 3 monthsof his Total Employment Cost) for the unexpired portion of his
employment contract (being the 3 months from 1 October 2007 to
31 December 2007). J McFarlane was also paid all statutory leave
entitlements, including a payment for pro rata long service leave
totalling $365,261.

Short-Term Incentive
The Board considered and determined the extent to which
J McFarlane satisfied the applicable performance criteria under
the short-term incentive program for the 2007 financial year.
As a result of that determination, Mr McFarlane received an STI
payment in relation to the 2007 financial year of $2,090,000.

In accordance with the terms of grant, J McFarlane was able to holdthese Performance Shares (subject to the performance conditions)
until the expiry date of 31 December 2009. The decision to acquire
these Shares was due to the fact that J McFarlane would have beentaxed at the time of retirement on the Performance Shares as if they
had passed the performance hurdles, and would not have received arefund of tax paid if the performance hurdles were not subsequently
met. This was in ANZ’s opinion inequitable, particularly given tax
can be reclaimed on Performance Rights and Options if performance
hurdles are not met. The Shares were reclassified and madeavailable for allocation to other employees under ANZ’s employee
share plan.

Shares held under the ANZ Directors’ Share Plan
J McFarlane elected to receive almost all of his remuneration(including annual bonuses) in the form of ANZ shares purchased
under the ANZ Directors’ Share Plan. On his cessation from ANZ,J McFarlane was entitled to all shares held on trust on his behalf
under the ANZ Directors’ Share Plan.

Long-Term Incentive
Of the 3,000,000 Hurdled Options granted to J McFarlane from
December 2001 to December 2004, 250,000 Hurdled Options
have not yet vested as at 31 October 2008.
In accordance with the rules of the ANZ Employee Option Plan,
under which the Hurdled Options were granted, the unvested
options may be held by J McFarlane until their expiry date (of 31
December 2008) set out in the terms of grant and his employment
contract. The Hurdled Options will continue to be subject to theperformance condition and will be tested in accordance with theirterms of grant until their expiry date, at which point they will lapse
if the performance hurdle is not met.
In relation to J McFarlane’s 175,000 Performance Shares (which
had not met their performance hurdle before his cessation), theBoard agreed to acquire J McFarlane’s interest in them for a paymentof $1,000,000 on 1 October 2007. The value of the Performance
Shares at the point of payment was nil (due to the fact that theperformance hurdle had not been passed at this date), howeverassuming achievement of the performance hurdle at this datethe Performance Shares would have been valued at $5.2 million(i.e. 1 day VWAP of $29.71 x 175,000).

Remuneration Report 31

For personal use only

Section E. Disclosed executives’ contract terms
Contractual terms are similar, but do, on occasion, vary to suit different needs. Section E1 details the contractual terms for executive KMP.

E1. CONTRACTS: R EDGAR, B HARTZER, G HODGES, P HODGSON, P MARRIOTT, S TARGETT AND A THURSBY
Length of Contract

Open-ended.

Fixed Remuneration

Remuneration consists of salary, 9% Superannuation Guarantee (SG) contributions(except for G Hodges and A Thursby) and nominated benefits.

Short-Term Incentive

Eligible to participate (refer to section C4.1 for details of short-term incentive arrangements).

Long-Term Incentive

Eligible to participate at the Board’s discretion (refer to section C4.2 for long-term incentive arrangements).

Resignation

Employment may be terminated by giving 6 months’ written notice.
On resignation any options and unvested deferred shares will be forfeited.

Termination on Notice by ANZANZ may terminate the executive’s employment by providing 12 months’ written notice or payment in lieu
of the notice period based on Fixed Remuneration.
On termination on notice by ANZ any Options or LTI Deferred Shares that have vested, or will vest during thenotice period will be released, in accordance with the ANZ Share Option Plan Rules. LTI shares that have notyet vested will generally be forfeited, although for some executives (B Hartzer and P Marriott) these shares
will be released in full. Under the new STI program (effective from 2008), vested shares will be released in fulland Executive KMP will be provided with a 12 month grace period to exercise any vested unexercised Options.
All unvested equity as at the date termination of notice is given, will be forfeited.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination dateand subject to business performance).

Redundancy

If ANZ terminates employment for reasons of bona fide redundancy, a severance payment will be madethat is equal to 12 months’ Fixed Remuneration.
All STI Deferred Shares are released. Options and LTI Deferred Shares are either released in full or ona pro-rata basis.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination dateand subject to business performance).

Death or Total andPermanent Disablement

All Options and Shares are released; pro-rata short-term incentive.

Termination forserious misconduct

ANZ may immediately terminate the executive’s employment at any time in the case of serious misconduct,
and the employee will only be entitled to payment of Fixed Remuneration up to the date of termination.
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination for serious misconduct any Options and any Deferred Shares still held in trust will be forfeited.

Other Aspects

As part of A Thursby’s employment arrangement and to compensate for equity foregone from his previous
employer, A Thursby has been offered 3 separate tranches of Deferred Shares to the value of $1,000,000
per annum, subject to Board approval. The first tranche was approved by the Board on 3 September 2007,
and the second on 28 August 2008, with the third tranche to be approved around the second anniversary of
A Thursby’s employment with ANZ. The Shares will be restricted and held in trust for three years from the dateof allocation for the beneficial interest of A Thursby, during which period they will be forfeited if employment
ceases for any reason other than retrenchment, death or total and permanent disablement, and that for
the whole period that the Shares remain in trust (including any further period) they will be forfeited for any
serious misconduct.

E2. PARTICIPATION IN EQUITY PROGRAMS
A number of Shares and Options are granted to executives under the remuneration programs detailed in Section C. For disclosed executives,
details of all grants made during the year and legacy LTI programs are listed in Section F. Aggregate holdings of Shares and Options arealso shown.

32 ANZ Annual Report 2008

For personal use only

Section F. Equity instruments relating to disclosed directors and executives
F1. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS (INCLUDING MOVEMENTS DURING THE 2007 & 2008 YEARS)

NameBalance ofshares as at
1 Oct
20071

Sharesacquired during
the year in lieu
of salary2

Shares resulting
from any otherchange during
the year3

C GoodeG Clark
J EllisM Jackson
I Macfarlane
D Meiklejohn
J Morschel

669,496
8,574
116,021
93,496
2,973
7,156
9,076

–
1,905
738
2,177
1,601
–
1,601

68,7832,000
23,622
555
4,000
8,000
–

Name

Balance ofshares as at
1 Oct
20061

Sharesacquired during
the year in lieu
of salary2

Shares resulting
from any otherchange during
the year3

C GoodeG Clark
J EllisD Gonski
M Jackson
I Macfarlane
D Meiklejohn
J Morschel

627,028
6,920
114,81068,94893,297
–
7,156
7,422

23,799
1,654
1,194
365
–
973
–
1,654

18,669–17(16,308)
199
2,000
–
–

2008 Financial Year2007 Financial Year

Balance ofshares held as
at 30 Sept
20081,4Balance ofshares held as
at reportsign-off date1

738,279
12,479140,381
96,228
8,574
15,156
10,677738,279
12,479151,182
96,2289,574
15,156
11,860

Balance ofshares held as
at 30 Sept
20071,5

Balance ofshares held as
at reportsign-off date1

669,496
8,574
116,02153,00593,496
2,973
7,156
9,076

669,496
10,479125,159
53,005
95,673
4,574
7,156
10,677

1 Balance of shares held at 1 October 2006/2007, 30 September 2007/2008, 7 November 2007 and 7 November 2008, includes directly and indirectly held shares, and shares held byrelated parties.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
3 Other shares resulting from any other changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan.
4 The following shares were held on behalf of NEDs (i.e. indirect beneficially held shares) as at 30 September 2008: C Goode – 395,821; G Clark – 12,479; J Ellis – 73,430; M Jackson – 13,563;
I Macfarlane – 2,574; D Meiklejohn – 12,656; J Morschel – 6,677.
5 The following shares were held on behalf of NEDs (i.e. indirect beneficially held shares) as at 30 September 2007: C Goode – 354,910; G Clark – 8,574; J Ellis – 49,092; D Gonski – 66,076;
M Jackson – 10,831; I Macfarlane – 2,973; D Meiklejohn – 4,656; J Morschel – 5,076.

F2.1 2008 SHAREHOLDINGS OF CEO, M smith (INCLUDING MOVEMENTS DURING THE 2008 YEAR)

2008

Balance ofshares as
at 1 Oct
20071

Shares acquired
during the year due
to sign-on award2

Shares resulting
from any otherchange during
the year3–

330,033

43,950

Balance ofshares held as
at 30 Sept
20081,4Balance ofshares held
as at reportsign-off date1

373,983

373,983

1 Balance of shares held at 1 October 2007, 30 September 2008, and 7 November 2008 includes directly and indirectly held shares, and shares held by related parties.
2 330,033 Deferred Shares were granted to M Smith (and approved by shareholders at the 2007 AGM) to compensate him for remuneration foregone from his previous employer on joining ANZ.
Refer to section D1.1 for details.
3 Other shares resulting from any other changes during the 2008 year include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
No shares were acquired during the year through the exercise of Options/Rights.
4 330,033 shares were held on behalf of M Smith (i.e. indirect beneficially held shares) as at 30 September 2008.

F2.2 2007 SHAREHOLDINGS OF former CEO, J McFARLANE (INCLUDING MOVEMENTS DURING THE 2007 YEAR)

2007
1
2
3
4
5
6
7

Balance ofshares as
at 1 Oct
20061

Shares acquired
during the year
due to sign-on
award2

Shares acquired
during the year
through the exercise
of options3

Shares resulting
from any otherchange during
the year4

Balance ofshares held as
at 30 Sept
20071,5

1,973,422

52,581750,000(2,091,569)

684,434

Balance ofshares held as at2007 reportsign-off date1,6

509,4347

Balance of shares held at 1 October 2006, 30 September 2007, and 7 November 2007 includes directly and indirectly held shares, and shares held by related parties.
All ANZ ordinary shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
All options held/exercised by J McFarlane were approved by shareholders (December 1999 and December 2001).
Other shares resulting from any other changes during the 2007 year include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
311,294 shares were held on behalf of J MacFarlane (i.e. indirect beneficially held shares) as at 30 September 2007.
The relinquishment of the CEO’s Performance Shares (175,000) were factored into this balance. Refer to section D2.3 for further details.
In accordance with requirements in NZ, the NZ exchange were notified of the sale (in February 2008) of 409,434 of J McFarlane’s ANZ shares.

Remuneration Report 33

For personal use only

F3.1 Performance rights granted TO CEO, M smith1
Grant date2

First date exercisable3

Date of expiry

Number granted

19-Dec-10
19-Dec-11
19-Dec-12

19-Dec-11
19-Dec-12
19-Dec-13

258,620
259,740
260,642

19-Dec-07
19-Dec-07
19-Dec-07

Total

779,0021 All Performance Rights granted to M Smith were approved by shareholders at the 2007 AGM. Balance of Performance Rights at 1 October 2007 equals zero and as at 30 September 2008
equals 779,002.
2 Refer to section F9 for details of the valuation methodology, inputs and fair value for the Performance Rights granted to M Smith on 19 December 2007. The maximum amortisation balance
is $7,160,245 for subsequent financial years and the value will be nil if the performance hurdles are not achieved.
3 The exercise price for Performance Rights is nil, with M Smith entitled to one ANZ ordinary share upon the exercise of each Performance Right. First tranche of Performance Rights is not able
to be exercised until 19 December 2010 (subject to meeting performance hurdles).

F3.2 OPTIONS GRANTED TO former CEO, J McFarlane1
Financial Year

Grant date

31-Dec-025
31-Dec-046

2007

2008

First date
exercisable

Date ofexpiryExercise
price2$31-Dec-04
31-Dec-06

31-Dec-07
31-Dec-08

16.69
20.49

Total

Number vested
during the2007 FY

Percentage thatvested during
2007
FY %

Vested andexercisable asat 30 Sept
2007

Unexercisable asat 30 Sept6
2007

1,000,000
500,000–
500,000

–
100

–
–

–
250,000

1,500,000

500,000–

250,000

Numbergranted3,4

1 All options granted to J McFarlane were approved by shareholders (December 1999 and December 2001).
2 The exercise price is equal to the weighted average share price during the 5 trading days immediately after the Company’s Annual General Meeting for the financial year that ended
before the grant date.
3 Nil options forfeited or expired during the 2007 period.
4 The amortisation balance is nil and the value will be nil if the performance hurdle on the 250,000 unexercisable options is not achieved by 31 December 2008.
5 500,000 of the 1,000,000 options granted were exercised in the 2006 year, and the 500,000 balance exercised in the 2007 year on 20 Dec 06 and 31 Aug 07 (refer to F4). Therefore,
nil vested and exercisable and nil unexercisable as at 30 Sep 2007.
6 250,000 of the 500,000 options granted were exercised in the 2007 year on 31 Aug 07 (refer to F4). The remaining 250,000 have not yet passed their performance hurdle (as at the2008 report sign-off), and will expire on 31 Dec 08. As such, 250,000 remained unexercisable as at 30 Sep 2007.

F4. 2007 OPTION HOLDINGS OF former CEO, J McFarlane (INCLUDING MOVEMENTS DURING THE 2007 YEAR)1

Balance as
at 1 Oct
2006

Exercisedduringthe year

Date ofexercise of
options

Number ofordinaryshares issued
on exercise
of options

1,000,000

300,000
200,000
250,000

20-Dec-06
31-Aug-07
31-Aug-07

300,000
200,000
250,000

Value ofoptions
exercisedduring theyear2$

Share priceon date of
exercise of
options$

Amountpaid pershare$

Balance
as at
30 Sept
2007

3,513,000
2,398,000
2,047,500

28.40
28.68
28.68

16.69
16.69
20.49

250,000

1 All options granted to J McFarlane were approved by shareholders (December 1999 and December 2001), with J McFarlane entitled to one ANZ ordinary share upon the exercise of each option.
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.

34 ANZ Annual Report 2008

For personal use only

F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES
Financial Year

2007

2008

LTI Deferred Shares1
Name

R EdgarTotal
B Hartzer

Total
G Hodges

Total
P Marriott

Total
P Hodgson

Grant date

Vesting date

05-Nov-03
05-Nov-03
11-May-04
05-Nov-04
05-Nov-04

05-Nov-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-07

05-Nov-03
11-May-04
05-Nov-04

05-Nov-06
11-May-07
05-Nov-07

05-Nov-03
11-May-04
05-Nov-04

05-Nov-06
11-May-07
05-Nov-07

05-Nov-03
11-May-04
05-Nov-04

05-Nov-06
11-May-07
05-Nov-07

05-Nov-03
11-May-04
05-Nov-04
08-Dec-04

05-Nov-06
11-May-07
05-Nov-07
08-Dec-07

05-Nov-04

05-Nov-07

Total

S TargettNumbergranted2

Number that
Percentage thatvested during vested during thethe 2007 or 2007 or 2008 year
2008 year%

8,889
25,0008,452
6,519
26,00074,860
7,408
7,135
9,127
23,670
5,699
6,586
7,522
19,807
9,573
9,275
8,475
27,323
1,097
1,111
1,974
12,481
16,6638,889
25,0008,452
6,519
26,00074,860
7,408
7,135
9,127
23,670
5,699
6,586
7,522
19,807
9,573
9,275
8,475
27,323
1,097
1,111
1,974
12,481
16,663

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

6,519

6,519

100

1 LTI deferred shares were last granted to KMP (for nil consideration) under the ANZ Long-Term Incentive Program in the 2005 year, and therefore were not granted in the 2007 or 2008 years.
LTI is currently delivered to executive KMP in the form of Performance Rights (refer to section C4.2). The LTI deferred shares (i.e. ANZ ordinary shares) are restricted for 3 years and may be heldin trust beyond this time. Refer to section F10.2 for more details.
2 Nil shares forfeited during the 2007 and 2008 years, and as at 30 September 2008, 100% of LTI Defered Shares had vested.

STI Deferred Shares1,3
Name

R EdgarTotal
B Hartzer
Total
G HodgesTotal
P Hodgson
Total
P Marriott
Total

Grant date

Vesting date

05-Nov-03
11-May-04

05-Nov-06
11-May-07

05-Nov-03
11-May-04

05-Nov-06
11-May-07

05-Nov-03
11-May-04

05-Nov-06
11-May-07

05-Nov-03
11-May-04

05-Nov-06
11-May-07

05-Nov-03
11-May-04

05-Nov-06
11-May-07

Numbergranted2

Number thatvested during
the 2007 or
2008 year

Percentage thatvested during
the 2007 or
2008 year
%

6,781
7,683
14,464
7,322
7,244
14,566
5,129
5,653
10,782
7,835
9,330
17,165
7,978
9,604
17,582

6,781
7,683
14,464
7,322
7,244
14,566
5,129
5,653
10,782
7,835
9,330
17,165
7,978
9,604
17,582

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

1 These STI deferred shares were granted under a historical ANZ Short-Term Incentive Program (for nil consideration). No STI deferred shares were granted to executive KMP during the 2007
and 2008 years. These STI deferred shares (i.e. ANZ ordinary shares) were restricted for 3 years, however they may be held in trust beyond this time.
2 Nil shares forfeited during the 2007 & 2008 years, and as at 30 September 2008, 100% of STI Deferred Shares had vested.
3 For the 2008 report, STI Deferred Shares were granted on 31 October 2008 (before the report sign-off date). The allocation price was $17.18 (based on the 1 week weighted average priceof ANZ shares traded on the ASX in the week prior to and including the date of grant). The number of STI Deferred Shares (or Deferred Share Rights for G Hodges), granted to each disclosed
executive is as follows: R Edgar 7,275; B Hartzer 37,834; G Hodges 11,004; P Marriott 7,275; A Thursby 24,738.

Remuneration Report 35

For personal use only

F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES (continued)
Financial Year

2007

2008

Other Deferred Shares
Name

A Thursby1

Numberthat vested
during the year

Percentage thatvested during
the year
%

–
–

–
–

Grant date

Vesting date

Numbergranted3,4

03-Sep-07
28-Aug-08

03-Sep-10
28-Aug-11

34,60262,735

1,005,188
1,013,170

97,3372,018,358––

11-May-04

11-May-07

38,419–38,419100

Total

S Targett2

Value ofdeferred shares
granted during the2007 or 2008 year5$05-Nov-04

05-Nov-07

35,105–35,105100

13-May-05

13-May-08

32,080–32,08010007-Nov-05

07-Nov-08

29,838–29,838100

135,442–

135,442

100

Total

1 Other ANZ ordinary shares issued to A Thursby relate to the issue of deferred shares (for nil consideration) to compensate A Thursby for the loss of access to equity as a result of his resignationfrom his previous employer upon commencement with ANZ.
2 Other ANZ ordinary shares issued to S Targett (for nil consideration) relate to the issue of deferred shares (four tranches to the value of $700,000 each issued at 6 month intervals in May andNovember in 2004 and 2005) to compensate S Targett for equity foregone as a result of his resignation from his previous employer upon commencement with ANZ.
3 Nil shares forfeited during the 2007 and 2008 years.
4 The maximum amortisation balance for subsequent financial years for A Thursby is $1,627,387 and nil for S Targett.
5 The value of shares granted is based on the volume weighted average price of the Company’s shares traded on the ASX on the day the shares were granted, multiplied by the number granted.

F6. SHAREHOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2007 & 2008 YEARS)

NameBalance ofshares as at
1 Oct 20071

Shares granted
during the year
as remuneration

Number ofshares acquired
during the year
through exercise
of options

Shares resulting
from any otherchange during
the year2

R Edgar
B Hartzer
G Hodges
P Marriott
A Thursby
P Hodgson388,399
332,092
282,054572,629
34,60253,759––––62,735–31,577––
241,794–
9,000(38,000)––(240,196)–(29,000)

Name

Balance ofshares as at
1 Oct 2006 1

Shares granted
during the year
as remuneration

Number ofshares acquired
during the year
through exercise
of options

Shares resulting
from any otherchange during
the year2

R Edgar
B Hartzer
G Hodges
P Marriott
A Thursby
P Hodgson

421,733
96,083
239,319
660,513–53,759––––34,602–

66,666269,194
42,735
11,000––(100,000)(33,185)–(98,884)––

388,399
332,092
282,054572,629
34,60253,759S Targett

142,961–

153,688(152,667)

143,982

2008 Financial Year2007 Financial Year

Balanceof shares
held as at
30 Sept 20081,3

381,976
332,092
282,054574,227
97,33733,759Balanceof shares
held as at
30 Sept 20071,4

1 Balance of shares held at 1 October 2006/2007 and 30 September 2007/2008, include directly and indirectly held shares, and shares held by related parties.
2 Other shares resulting from any other changes during the year include the net result of any shares purchased, or sold or any acquired under the Dividend Reinvestment Plan.
3 The following shares were held on behalf of executive KMP (i.e. indirect beneficially held shares) as at 30 September 2008: R Edgar – 200,645; B Hartzer – 0; G Hodges – 146,747;
P Hodgson – 0; P Marriott – 177,930; A Thursby – 97,337.
4 The following shares were held on behalf of executive KMP (i.e. indirect beneficially held shares) as at 30 September 2007: R Edgar – 213,510; B Hartzer – 78,607; G Hodges – 146,747;
P Hodgson – 53,759; P Marriott – 177,930; S Targett – 141,961; A Thursby – 34,602.

36 ANZ Annual Report 2008

F7. OPTIONS GRANTED TO DISCLOSED EXECUTIVES1

For personal use only

Financial YearName

R EdgarTotal
B Hartzer

Total
G Hodges

Total
P Marriott

Total
A Thursby
P Hodgson

Total
10
S Targett

Total

2007

Type ofoptions2

2008

Exercise
price4,5
$

Grant
date

First date
exercisable

Date ofexpiry3Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Performance Rights

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10

22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12

17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00

Hurdled A11
Hurdled A11
Hurdled A11
Hurdled A11
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Performance Rights

24-Apr-01
24-Oct-01
24-Apr-02
24-Apr-02
23-Apr-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07

24-Apr-04
24-Oct-04
24-Apr-05
24-Apr-05
23-Apr-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10

24-Apr-08
24-Oct-08
24-Apr-09
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12

12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00

Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Performance Rights

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10

22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12

17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00

Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Performance Rights

21-Nov-00
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07

21-Nov-03
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10

21-Nov-07
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12

13.62
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00

Performance Rights
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights9
Performance Rights930-Oct-07
24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07

31-Oct-10
24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10

31-Oct-12
24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12

0.00
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00

Hurdled A
Hurdled B
Performance Rights
Performance Rights

11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

11-May-07
05-Nov-07
19-Nov-08
25-Oct-09

10-May-11
04-Nov-11
18-Nov-10
24-Oct-11

18.22
20.68
0.00
0.00

Numbergranted6,7

Number Percentage thatvestedvested during
during thethe 2007 or
2007 or2008 year
2008 year%

125,000
147,000
66,666
63,11552,00060,34645,872
19,290579,289
42,00036,00059,00050,000109,000
113,000
55,55553,27972,80064,65664,98565,686785,961
63,000113,000
42,73549,18160,00060,34657,34057,870503,472
170,000
153,000
158,000
71,794
69,26367,60062,501
57,34057,870867,368
46,2969,000
9,600
14,70017,2008,221
8,300
15,75051,72545,872
57,870238,238
307,377
52,00064,65757,340481,374––
66,666
63,11552,000–––181,781––––––
55,55553,27972,800–––181,634––
42,73549,18160,000–––151,916–––
71,794
69,26367,600–––208,657
–
–
–
–
–
8,221
8,300
15,750–––32,271
307,377
52,000––359,377

–
–
100
100
100
–
–
–
31%
–
–
–
–
–
–
100
100
100
–
–
–
30%
–
–
100
100
100
–
–
–
30%
–
–
–
100
100
100
–
–
–
24%
–
–
–
–
–
100
100
100
–
–
–
14%
100
100
–
–
75%

Vested andexercisable
as at 30 Sept2007 or 2008

Unexercisable
as at 30 Sept2007 or 20088–––
31,557––––31,557
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,590––––24,590170,000––
71,794
34,631––––
276,425
–
9,000
9,600
–
–
8,221
4,150
–
–
–
–
30,971–––––125,000
147,000–
31,55852,000–––355,558––––
109,000
113,000–
26,64072,800–––321,440
63,000113,000–
24,59160,000–––260,591–
153,000
158,000–
34,632
67,600–––413,232–––
14,70017,200–4,150
15,750–––51,800153,689–––
153,689

1 Options granted pertains to those options granted, vested or exercised during the year, options yet to vest and any unexercised options. The exercise of each option (including Performance Rights),
entitles the holder to one ANZ ordinary share.
2 Refer to section F10.1 for more details pertaining to hurdled A, hurdled B and index linked options.
3 Treatment of options on termination of employment is explained in section E of the Remuneration Report.
4 The exercise price for hurdled A & B options and index linked options is equal to the weighted average share price over the 5 trading days up to and including the grant date. The exercise pricefor performance rights is nil. Note, the original exercise price of options issued prior to the Renouncable Rights issue in November 2003 was reduced by 72 cents, because of the dilutionof share capital associated with the Renouncable Rights issue. Given index-linked options have a dynamic exercise price, the original exercise price is shown in F7 (refer to F10.1 for more details).
5 Refer to section F9 for details of the valuation methodology and inputs for performance rights granted in the 2007 and 2008 years.
6 For the 2008 report, Performance Rights and Deferred Options were granted on 31 October 2008 (before the report sign-off date). The Performance Rights allocation price was $9.99 and theDeferred Options allocation price, $2.58. The number of Performance Rights and Deferred Options granted respectively to each disclosed executive is as follows: R Edgar 25,025 and 48,385;
B Hartzer 75,075 and 0; G Hodges 50,050 and 67,739; P Hodgson 0 and 0; P Marriott 50,050 and 48,385; A Thursby 55,055 and 164,509. These amounts relate to the 2009 financial year.
7 The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $631,465; B Hartzer $1,199,309; G Hodges $1,064,749; P Hodgson $5,305;
P Marriott $1,064,840; A Thursby $395,027.
8 Unexercisable as options have not met performance hurdle. Only 50% of Hurdled A options granted on 11 May 2004 are available for exercise. The remaining 50% will become available for exercise
once ANZ achieves the S&P/ASX 100 Accumulation Index performance hurdle. For Hurdled B options granted on 5 November 2004, 100% are unexercisable as at 30 September 2008, as ANZ’srelative TSR performance is below the median of the comparator group (i.e. minimum level required for vesting). Refer to section F10.1 for details of Hurdled A and Hurdled B performance hurdles.
9 P Hodgson’s Performance Rights in relation to 2006 and 2007 have been 100% forfeited as a result of his termination (as per the conditions of grant). Therefore, nil are vested and exercisable/
unexercisable as at 30 Sep 2008.
10 S Targett was granted Hurdled Options to compensate for the loss of equity from his previous employer.
11 Options exercised 16 May 2007.

Remuneration Report 37

For personal use only

F8. OPTION HOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2007 & 2008 YEARS)

2008 Financial Year
Name

Type ofoptions

R EdgarHurdledIndex-Linked
Performance Rights

B Hartzer

HurdledIndex-Linked
Performance Rights

G Hodges

HurdledIndex-Linked
Performance Rights

P Marriott

HurdledP Hodgson

Index-Linked
Performance Rights
Other3
HurdledIndex-Linked
Performance Rights

Balance as at
1 Oct 2007

Granted during
the year as
remuneration

Resulting fromany other change
during year

Value of options
granted during the year1$

115,115
272,000
106,218
99,440222,000
129,641
109,181
176,000
117,686
378,657––
19,290––65,586––57,870
–

–
–
–

–
–
237,267–––––
806,708

–
–
–
–

–
–
711,801–

311,000
119,841442
50,871
31,90097,597–57,870–––57,870––––711,801–

31,557
–
–
–
–
–
–
–
–
170,000
71,794–––––(103,742)––
711,801

9,000––

Balance as at
1 Oct 2006

Granted during
the year as
remuneration

Resulting fromany other change
during year

Value of options
granted during the year1$

2007 Financial Year
Name

Type ofoptions

Exercised during
the year

Exercised during
the year

R EdgarHurdledIndex-Linked
Performance Rights

181,781
272,000
60,346––45,872–––––600,006

B Hartzer

Hurdled368,634–––

Index-Linked
Performance Rights

222,000
64,656–64,985–––850,004

HurdledIndex-Linked
Performance Rights

151,916
176,000
60,346––––57,340–––750,007

P Marriott

HurdledIndex-Linked
Performance Rights
Other3

378,657
311,000
62,501
11,442––
57,340
–

–
–
–
–

–
–
750,007
–

–
–
–
5,000
5,000
1,000

P Hodgson

HurdledIndex-Linked
Performance Rights
Hurdled
Performance Rights

50,871
31,90051,725359,377
64,657––45,872–
57,340

–
–
–
–
–

–
–
600,006–
750,007–––
153,688–

G Hodges

S Targett

66,666––42,00036,00059,00050,00055,555
26,639––42,735––

1 The value of options granted during the year is based on the fair value of the option multiplied by the number granted. Refer to section F9 for details of the valuation methodology and inputs.
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.
3 Other refers to share options granted to a related party. 442 of these options were vested and exercisable as at 30 September 2007 and at 30 September 2008.

38 ANZ Annual Report 2008

For personal use only

Date of exercise
of options

14-Nov-07
–
–
–
–
–
–
–
–
07-Nov-07
08-Nov-07–––
16-Jul-08––

Number of ordinary
shares issued on
exercise of options

Value of options
exercised during the year2$

Share price on dateof exercise of options$

Amount paid
per share$

31,557
–
–
–
–
–
–
–
–
170,000
71,794–––332,295
–
–
–
–
–
–
–
–
2,781,200
776,093–––
12,240
–
–

28.75
–
–
–
–
–
–
–
–
29.98
28.36
–
–
–

18.22
–
–
–
–
–
–
–
–
13.62
17.55
–
–
–

17.69
–
–

16.33
–
–

311,000
177,711442
41,871
31,90051,725

Balance as at
30 Sept 2007

9,000
–
–

Balance as at
30 Sept 2008

83,558272,000
125,508
99,440222,000
195,227
109,181
176,000
175,556
136,863

Date of exercise
of options

Number of ordinary
shares issued on
exercise of options

Value of options
exercised during the year2$

Share price on date of
exercise of options$

Amount paid
per share$

15-Nov-06––
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07––

66,666––42,00036,00059,00050,00055,555
26,639––765,326––
693,000
473,400
675,550
572,500
662,771299,955
–
–

29.03
–
–
29.48
29.48
29.48
29.48
29.48
29.48
–
–

17.55
–
–
12.98
16.33
18.03
18.03
17.55
18.22
–
–

115,115
272,000
106,218

14-Nov-06

42,735

488,461

28.98

17.55

109,181
176,000
117,686–––
17-May-07
17-May-07
17-May-07–––
11-May-07
–

–
–
–
5,000
5,000
1,000
–
–
–
153,688––––
93,00077,45016,710–––1,887,289
–

–
–
–
29.69
29.69
29.69
–
–
–
30.50
–

–
–
–
11.09
14.20
12.98
–
–
–
18.22
–

378,657
311,000
119,841442

99,440222,000
129,641

50,871
31,90097,597
205,689
121,997

Remuneration Report 39

For personal use only

F9. Performance Right VALUATIONS
Grant
date

Optionvalue1

Share priceat grant

ANZ expectedvolatility2

Option term
(years)Vesting period(years)Expected life
(years)Expected
dividend
yield3

Risk freeinterest rate4%

Executive KMP

24-Oct-06

13.08

28.15

15

5

3

3

4.80

6.00

Executive KMP

30-Oct-07

12.30

29.69

15

5

3

3

4.50

6.63

CEO, M Smith

19-Dec-07

11.60

26.85

17

4

3

3

4.50

6.82

CEO, M Smith

19-Dec-07

11.55

26.85

17

5

4

4

4.50

6.73

CEO, M Smith

19-Dec-07

11.51

26.85

17

6

5

5

4.50

6.66

Recipients

1 PricewaterhouseCoopers and Mercer independently valued these options. In accordance with AASB 2 the valuation model takes into account a range of factors to determine the valueof a Performance Right such as the life of the Rights, the probability of vesting, the price of the underlying shares at grant, expected volatility of the share price and the dividends expectedon the shares.
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
3 In estimating the fair value of the ANZ option grant, expected dividends were included in the application of the model. The expected dividend yield applied to the model was based on
an analysis of ANZ’s historical dividend payments and yields.
4 The risk-free interest rate is based on the implied yield currently available on zero-coupon bonds issued by the Australian government, with a remaining term equal to the expected lifeof ANZ’s options.

F10. LEGACY LONG TERM INCENTIVE (LTI) PROGRAMS
F10.1 Options (Granted prior to October 2005)
Each option has the following features:	An exercise price (or for index-linked options, the original
exercise price) that is set equal to the weighted average saleprice of all fully paid ordinary shares in the Company sold on
the Australian Securities Exchange during the 1 week prior toand including the date of grant;	A maximum life of 7 years and an exercise period that commences
3 years after the date of grant, subject to performance hurdles
being met. Options are re-tested monthly (if required) after thecommencement of the exercise period;	Upon exercise, each option entitles the option-holder to one
ordinary share;	In case of resignation or termination on notice or dismissal for
misconduct: options are forfeited;	In case of redundancy: options are pro-rated and a grace period isprovided in which to exercise the remaining options (with hurdles
waived, if applicable);	In case of retirement, death or total & permanent disablement:a grace period is provided in which to exercise all options(with hurdles waived, if applicable); and	Performance hurdles, which are explained below for each typeof option.

Hurdled Options (Hurdled B) (Granted November 2004)
In November 2004 hurdled options were granted with a relative
TSR performance hurdle attached.
The proportion of options that become exercisable will depend
upon the TSR achieved by ANZ relative to the companies in thecomparator group shown below. Performance equal to the median
TSR of the comparator group will result in half the options becoming
exercisable. Performance above median will result in further options
becoming exercisable, increasing on a straight-line basis until all of
the options become exercisable where ANZ’s TSR is at or above the75th percentile in the comparator group.

40 ANZ Annual Report 2008

Comparator GroupAMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
Hurdled Options (Hurdled A) (Granted to Executives from February
2000 until July 2002, and from November 2003 until May 2004.
Granted to J McFarlane from December 2001 until December 2004)
Until May 2004, hurdled options were granted to executives with thefollowing performance hurdles attached. The following performance
hurdles also pertain to the options granted to J McFarlane:
1.	Half the options may only be exercised once ANZ’s TSR exceeds
the percentage change in the S&P/ASX 200 Banks (Industry Group)
Accumulation Index, measured over the same period (since issue)and calculated as at the last trading day of any month (once theexercise period has commenced); and2. The other half of hurdled options may only be exercised once
the ANZ TSR exceeds the percentage change in the S&P/ASX 100
Accumulation Index, measured over the same period (since issue)and calculated as at the last trading day of any month (once theexercise period has commenced).
Index-linked options (Granted from October 2002 to May 2003)
Index-linked options have a dynamic exercise price that acts asa built-in performance hurdle, i.e. the exercise price is adjusted inline with the movement in the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ). As an additional constraint,
the adjusted exercise price can only be set at or above the original
exercise price. They are exercisable between the 3rd and 7th year
after grant date, subject to the adjusted exercise price being above
the prevailing share price.

For personal use only

F10.2 Deferred Shares (Granted from February 2000)
Deferred Shares granted under the LTI arrangements were designed
to reward executives for superior growth whilst also encouraging
executive retention and an increase in the Company’s share price.
	Shares are subject to a time-based vesting hurdle of 3 years,
during which time they are held in trust;	During the deferral period, the employee is entitled to any
dividends paid on the shares;	Shares issued under this plan may be held in trust for up to
10 years;	The value used to determine the number of LTI deferred shares
to be allocated has been based on the volume weighted average
price of the shares traded on the ASX in the week leading up to
and including the date of issue;	In case of resignation or termination on notice or dismissal for
misconduct: LTI shares are forfeited;	In case of redundancy: the number of LTI shares that are released
is pro-rated according to the time held as a proportionof the vesting period; and	In case of retirement, death or total & permanent disablement:
LTI shares are released to executives.

Deferred Shares no longer form part of the executive remuneration
program detailed in section C, however there may be circumstances(such as retention) where this type of equity (including Deferred Share
Rights) will be issued.

F10.3 Performance Shares (Granted December 2004 to CEO)In December 2004 Performance Shares were granted to the former
CEO J McFarlane with a relative TSR performance hurdle attached.
While a decision was made upon J McFarlane’s cessation to acquire
his interest in these shares (refer to section D2.3), the hurdle attachedto these performance shares at grant was as follows: The proportionof shares that vest will depend upon the TSR achieved by ANZ
relative to the companies in the comparator group (as per Hurdled
B options). Performance equal to the median TSR of the comparatorgroup will result in half the Performance Shares becoming exercisable.
Performance above median will result in further Performance Shares
becoming exercisable, increasing on a straight-line basis until all of
the Performance Shares become exercisable where ANZ’s TSR is at or
above the 75th percentile in the comparator group.

Signed in accordance with a resolutionof the directors

Charles Goode
ChairmanMichael R P Smith
Director
7 November 2008
Copy of the auditor’s independence DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
To: the directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation
to the audit for the financial year ended 30 September 2008 there
have been:i) no contraventions of the auditor independence requirements as
set out in the Corporations Act 2001 in relation to the audit; andii) no contraventions of any applicable code of professional conduct
in relation to the audit.

KPMG

Michelle Hinchliffe
Partner
Melbourne
7 November 2008

Remuneration Report 41

Corporate
GovernanceFor personal use only

A solid foundation at ANZ“The following statement sets out the governance framework the Board has adopted at ANZ to assist it in discharging its
responsibilities and details the substantive work undertaken by the Board and its Committees during the financial year.”Charles Goode, Chairman

APPROACH TO GOVERNANCE

NEW ZEALAND

In relation to corporate governance, the Board seeks to:

As an overseas listed issuer on the NZX, ANZ is deemed to comply
with the NZX Listing Rules provided that it remains listed on the ASX,
complies with the ASX Listing Rules and provides the NZX with all theinformation and notices that it provides to the ASX.

	embrace principles and practices it considers to be bestpractice internationally;	be an ‘early adopter’, where possible, by complying before
a published law or recommendation takes effect; and	take an active role in discussions regarding the developmentof corporate governance best practice and associated regulationin Australia and overseas.

COMPLIANCE WITH CORPORATE GOVERNANCE CODESANZ has equity securities listed on the Australian (ASX) and
New Zealand (NZX) Securities Exchanges and has debt securities
listed on these and some other overseas Securities Exchanges.
As such, ANZ must comply with a range of listing and corporate
governance requirements from both Australia and overseas.

AUSTRALIA

As a company listed on the ASX, ANZ is required to disclose how
it has applied the Recommendations contained within the ASX
Corporate Governance Council’s Principles of Good Corporate
Governance and Best Practice Recommendations (ASX GovernancePrinciples) during the financial year, explaining any departuresfrom them. As announced last year, the revised version of the ASX
Governance Principles released in August 2007 will strictly only
apply to ANZ in respect of its 2009 reporting period.
In line with its stated approach to governance, ANZ has chosen
to be an early adopter of the revised ASX Governance Principles
and has complied with each of the Recommendations throughout
the financial year.
Full details of the location of the references in this statement(and elsewhere in this Annual Report) which specifically set
out how ANZ applies each Recommendation of the revised
ASX Governance Principles are contained on www.anz.com >About ANZ > Our Company > Corporate Governance.

The ASX Governance Principles differ from the NZX’s corporate
governance rules and the principles of the NZX’s Corporate
Governance Best Practice Code. More information about thecorporate governance rules and principles of the ASX can be foundat www.asx.com.au and, in respect of the NZX, at www.nzx.com.
Irrespective of any differences, ANZ has complied with all applicablegovernance principles both in Australia and New Zealand throughout
the financial year.

OTHER JURISDICTIONSANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions including the US.
ANZ deregistered from the US Securities and Exchange Commission
with effect from October 2007. Despite no longer being required
to comply with US corporate governance rules, ANZ has decided
to continue with certain governance practices required under US
regulations as being best practice, including practices in relation
to the independence of Directors, the independence of the external
auditor and the financial expertise of certain members of the Audit
Committee, as described in this statement.

Recognition
In 2008, ANZ received the Special Award for Governance Reporting(Private Sector) at the 2008 Australasian Reporting Awards. ANZ
also received a rating of 95/100 for Corporate Governance in 2008
from the Dow Jones Sustainability Index, the highest rating for abank globally, as well as an 8/10 global rating from GovernanceMetrics International.

WEBSITE
Full details of the location of the references in this statement (andelsewhere in the Annual Report) which specifically set out how
ANZ applies each Recommendation of the revised ASX GovernancePrinciples are contained on www.anz.com > About ANZ > Our Company> Corporate Governance.
This section of ANZ’s website also contains copies of all the charters
and summaries of many of the documents and policies mentioned
in this statement, as well as summaries of other ANZ policies ofinterest to shareholders and stakeholders. The website is regularly
updated to ensure it reflects ANZ’s most recent corporate governanceinformation.

42 ANZ Annual Report 2008

For personal use only

DIRECTORSMr C B Goode, AC Chairman, Independent Non-Executive Director
BCom (Hons), MBA, Hon LLD (Melb), Hon LLD (Monash)

Non-executive director since July 1991. Mr Goode was appointed
Chairman in August 1995 and is an ex-officio member of all Board
Committees.
Skills, experience and expertise
Mr Goode has a background in the finance industry and has
been a professional non-executive director since 1989. Mr Goodebrings a wide range of skills and significant experience of thefinance industry to his role as Chairman of the Board.
Current Directorships
Chairman: Australian United Investment Company Limited(Director from 1990), Diversified United Investment Limited(Director from 1991), Grosvenor Australia Properties Pty Ltd(Director from 2008) and The Ian Potter Foundation Ltd (Director
from 1987).
Member: International Council of the Asia Society (from 2000),
Asia Society Australasia Centre (from 2003), AsiaLink Council(from 2002) and The Global Foundation (from 1999).
Former Directorships include
Former Chairman: Woodside Petroleum Limited (Director
1988–2007, Chairman 1999-2007). Former President: Howard
Florey Institute of Experimental Physiology and Medicine (Director
1987–2006, President 1997–2004). Former Director: Singapore
Airlines Limited (1999–2006).
Age 70. Residence Melbourne.

Mr M R P Smith, OBE Chief Executive Officer, Executive Director
BSc (Hons)

Chief Executive Officer, since October 2007.

Skills, experience and expertise
Mr Smith is an international banker with 30 years experience inbanking operations in Asia, Australia and internationally. Until June
2007, he was President and Chief Executive Officer, The Hongkong
and Shanghai Banking Corporation Limited, Chairman, Hang Seng
Bank Limited, Global Head of Commercial Banking for the HSBC
Group and Chairman, HSBC Bank Malaysia Berhad. Previously,
Mr Smith was Chief Executive Officer of HSBC Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978 and during his international
career he has held a wide variety of roles in Commercial, Institutionaland Investment Banking, Planning and Strategy, Operations andGeneral Management.

Current Directorships
Director: ANZ National Bank Limited (from 2007) and The Financial
Markets Foundation for Children (from 2008). Member: Chongqing
Mayor’s International Economic Advisory Council (from 2006),
Australian Bankers’ Association Incorporated (from 2007) and Asia
Business Council (from 2008). Fellow: The Hong Kong Management
Association (from 2005).
Former Directorships include
Former Chairman: HSBC Bank Malaysia Berhad (2004–2007) andHang Seng Bank Limited (2005–2007). Former CEO and Director: The
Hongkong and Shanghai Banking Corporation Limited (2004–2007).
Former Director: HSBC Australia Limited (2004–2007), HSBC FinanceCorporation (2006–2007) and HSBC Bank (China) Company Limited(2007). Former Board Member: Visa International (Asia Pacific)
Limited (2005–2007).
Age 52. Residence Melbourne.

Dr G J Clark Independent Non-Executive Director, Chairman of the Technology Committee
BSc (Hons), PhD, FAPS, FTSE

Non-executive director since February 2004. Dr Clark is a memberof the Governance Committee.
Skills, experience and expertise
Dr Clark is Principal of Clark Capital Partners, a US based firm thatadvises internationally on technology and the technology market
place. Previously he held senior executive positions in IBM, News
Corporation, and Loral Space and Communications. He brings to
the Board international business experience and a distinguishedcareer in micro-electronics, computing and communications.

Current Directorships
Chairman: GPM Classified Directories (from 2007). Director: Babcock& Brown Capital Limited (from 2006) and KaComm Communications
Pty Ltd (from 2006).
Former Directorships include
Former Director: James Hardie Industries NV (2002–2006) and Acton
Semiconductor Pty Limited (2001–2005).
Age 65. Residence Based in New York, United States of America but
also resides in Sydney.

Corporate Governance 43

For personal use only

Mr J K Ellis Independent Non-Executive Director
MA, FAICD, Hon FIE AUST, FAus IMM, FTSE, Hon DR ENG (CQU)

Non-executive director since October 1995. Mr Ellis is a memberof the Audit Committee and the Technology Committee.
Skills, experience and expertise
Mr Ellis brings to the Board his analytical skills together with hispractical understanding of operational issues, investments andacquisitions arising from his involvement across a range of sectors
including natural resources, manufacturing, biotechnology andeducation.
Current Directorships
Chairman: Landcare Australia Limited (from 2004), Future Eye
Pty Ltd Advisory Board (from 2008), Pacific Road Corporate
Finance Pty Limited Advisory Board (Director from 2002) and theEarth Resources Development Council (from 2006). Director: Future
Directions International Pty Ltd (from 2003). Member: The SentientGroup Advisory Council (from 2001) and Anglo American plc’s
Australian Advisory Board (from 2006).
Former Directorships include
Former Chairman: The Broken Hill Proprietary Company Limited(Director 1991–1999, Chairman 1997–1999), Pacifica Group
Limited (Chairman and Director 1999–2007), Australia-JapanFoundation (1999–2005), Golf Australia (2005–2008) and National
Occupational Health & Safety Commission (2003–2005). Former
Chancellor: Monash University (1999–2007). Former Director:
GroPep Limited (2000–2005).
Age 71. Residence Melbourne.

Ms M A Jackson, AC Independent Non-Executive Director, Chairman of the Human Resources Committee
BEc, MBA, Hon LLD (Monash), FAICD, FCA

President: Australian Volunteers International (from 2006).

Non-executive director since March 1994. Ms Jackson is a memberof the Audit Committee.

Former Directorships include
Former Chairman: Qantas Airways Limited (Director 1992–2007,
Chairman 2000–2007). Former Co-Chairman: Australia NZ Leadership
Forum (2003–2006). Former Director: Howard Florey Institute ofExperimental Physiology and Medicine (1998-2006) and Florey
Neuroscience Institute (2007–2008). Former Partner: Consulting
Division of KPMG Peat Marwick (1991–1992).
Age 55. Residence Melbourne.

Skills, experience and expertise
A Chartered Accountant, with significant financial expertise,
Ms Jackson has broad industrial and commercial experience
including her involvement in transportation, mining, the media,
manufacturing and insurance. This expertise coupled with her
work in health and education contribute to her role on the Board.
Current Directorships
Chairman: FlexiGroup Limited (from 2006), Asia Pacific BusinessCoalition on HIV/AIDS (from 2006) and the Ponting Foundation(from 2008). Director: Billabong International Limited (from 2000)
and Australian Tissue Engineering Centre (from 2007).

Mr I J Macfarlane, AC

Independent Non-Executive Director, Chairman of the Governance Committee

BEc (Hons), MEc, Hon DSc (Syd), Hon DSc (Unsw), Hon DCom (Melb), Hon DLitt(Macq), Hon LLD (Monash)

Non-executive director since February 2007. Mr Macfarlane is amember of the Risk Committee and the Technology Committee.
Skills, experience and expertise
During his 28 year career at the Reserve Bank of Australia
including a 10 year term as Governor, Mr Macfarlane madea significant contribution to economic policy in Australia andinternationally. He has a deep understanding of financial
markets as well as a long involvement with Asia.
Current Directorships
Director: Woolworths Limited (from 2007), Leighton Holdings
Limited (from 2007), and the Lowy Institute for International
Policy (from 2004).

44 ANZ Annual Report 20072008

Member: International Advisory Board of Goldman Sachs JB Were(from 2007) and International Advisory Board of CHAMP Private
Equity (from 2007).
Former Directorships include
Former Chairman: Payments System Board (1998–2006), AustralianCouncil of Financial Regulators (1998–2006), Financial Markets
Foundation for Children (1996–2006) and Reserve Bank of Australia(Board Member 1992–2006, Chairman 1996–2006).
Age 62. Residence Sydney.

For personal use only

Mr D E Meiklejohn Independent Non-Executive Director, Chairman of the Audit Committee
BCom, Dip Ed, FCPA, FAICD, FAIM

Non-executive director since October 2004. Mr Meiklejohn is amember of the Governance Committee and the Risk Committee.
Skills, experience and expertise
Mr Meiklejohn has a strong background in finance and accounting.
He also brings to the Board his experience across a number of
directorships of major Australian companies spanning a range
of industries.

Current Directorships
Chairman: PaperlinX Limited (Director from 1999). Director: Coca
Cola Amatil Limited (from 2005) and Mirrabooka Investments
Limited (from 2006). President: Melbourne Cricket Club (Committee
member from 1987).
Former Directorships include
Former Chairman: SPC Ardmona Limited (Chairman and Director
2002–2005). Former Director: WMC Resources Limited (2002–2005)
and OneSteel Limited (2000–2005). Director and Chief Financial
Officer Amcor Limited (1985–2000).
Age 66. Residence Melbourne.

Mr J P Morschel Independent Non-Executive Director, Chairman of the Risk Committee
DipQS, FAIM

Non-executive director since October 2004. Mr Morschel is amember of the Human Resources Committee.
Skills, experience and expertise
Mr Morschel has a strong background in banking, financial services
and property and brings the experience of being a Chairman and
Director of major Australian and international companies.

Current Directorships
Director: Singapore Telecommunications Limited (from 2001),
Tenix Pty Limited (from 1998) and Gifford Communications Pty
Limited (from 2000).
Former Directorships include
Former Chairman: Rinker Group Limited (Chairman and Director
2003–2007). Former Director: Rio Tinto Plc (1998–2005), Rio Tinto
Limited (1998–2005), Westpac Banking Corporation (1993–2001)
and Lend Lease Corporation Limited (1983–1995).
Age 65. Residence Sydney.

BOARD RESPONSIBILITY AND DELEGATION OF AUTHORITY

BOARD CHARTER

The Board is chaired by an independent non-executive Director.
The roles of the Chairman and Chief Executive Officer are separate,
and the Chief Executive Officer is the only executive Director on
the Board.

The Board Charter clearly sets out the Board’s purpose, powers,
and specific responsibilities.

ROLE OF THE CHAIRMAN
The Chairman plays an important leadership role and is involved in:	chairing meetings of the Board and providing effective leadershipto it;
	monitoring the performance of the Board and the mix of skills
and effectiveness of individual contributions;	being a member of all principal Board Committees;	maintaining ongoing dialogue with the Chief Executive Officer
and providing appropriate mentoring and guidance; and	being a respected ambassador for ANZ, including chairing
meetings of shareholders and dealing with key customer,
political and regulatory parties.

The Board is responsible for:	charting the direction, strategies and financial objectives for
ANZ and monitoring the progress in relation to such matters;	monitoring compliance with regulatory requirements, ethicalstandards and external commitments; and	appointing and reviewing the performance of the Chief Executive
Officer.
In addition to the above and any matters expressly required by law
to be approved by the Board, powers specifically reserved for the
Board include:	approval of appointment of Senior Executives to roles leading
ANZ businesses or functions and reporting to the Chief Executive
Officer;	any matters in excess of any discretions delegated to the Chief
Executive Officer and senior management;	annual approval of the budget and strategic plan;

Corporate Governance 45

For personal use only	annual approval of the remuneration and conditions of service
for any executive Directors, direct reports to the Chief Executive
Officer and other key executives;

	significant changes to organisational structure;	the acquisition, establishment, disposal or cessationof any significant business;	the issue of ANZ shares or other ANZ equity securities;	any public statements which reflect significant issuesof ANZ policy or strategy; and	any changes to the discretions delegated from the Board.

Under ANZ’s Constitution, the Board may delegate any of its
powers and responsibilities to Committees of the Board. The rolesof the principal Board Committees are set out on pages 50 to 53.
Substantive areas of focus in the 2008 financial year included
oversight of:	ANZ’s responses to the deterioration in global financial markets,
including ANZ’s capital and funding requirements;
	progress in relation to the Securities Lending Review andthe ongoing progress of remediation issues;	the “One ANZ” restructure of the ANZ business; and	approval of ANZ’s strategies in relation to its three year
super regional aspirations.

BOARD MEETINGSThe Board normally meets at least 8 times each year, including
an offsite meeting to review in detail the Group’s strategy.
Typically at Board meetings the agenda will include:minutes of the previous meeting, and outstanding issues
raised by Directors at previous meetings;

	the Chief Executive Officer’s report;
the Chief Financial Officer’s report;
Divisional Executive reports;

specific business proposals;	reports from Chairs of Committees which have met since the last

CEO AND DELEGATION TO MANAGEMENT
The Board has delegated to the Chief Executive Officer, andthrough the Chief Executive Officer to other senior management,
the authority and responsibility for managing the everyday affairsof ANZ. The Board monitors management and performance onbehalf of shareholders.
The Group Discretions Policy details the comprehensive discretions
framework that applies within ANZ and to employees appointed tooperational roles or directorships of related entities.
The Group Discretions Policy is maintained by the Chief Financial
Officer and reviewed annually by the Audit Committee with theoutcome of this review reported to the Board.
At a senior Group level, ANZ has a Management Board which
comprises the Chief Executive Officer and ANZ’s most senior
executives.
As at 1 October 2008, the following senior executives, in addition
to the Chief Executive Officer, were members of Management
Board: Bob Edgar – Deputy Chief Executive Officer; Peter Marriott– Chief Financial Officer; Brian Hartzer – Chief Executive Officer,
Australia; Graham Hodges – Chief Executive Officer, New Zealand;Alex Thursby – Chief Executive Officer, Asia Pacific and Acting GroupManaging Director, Institutional; David Cartwright– Group Managing
Director, Operations, Technology and Shared Services; Susie Babani– Group Managing Director, Human Resources; Chris Page – Chief
Risk Officer; David Hisco – Group Managing Director, Commercial
Banking; and Margaret Payn – Group Managing Director, Strategy& Marketing.
Typically, the Management Board meets every week and has a fullday meeting each month to discuss performance, review sharedinitiatives and build collaboration and synergy across the Group.

“ONE ANZ”
On 9 September 2008, ANZ announced a new business modeland organisation structure to accelerate progress with its strategy
to become a super regional bank, lift customer focus and drive
performance improvement.

Board meeting on matters considered at those meetings; and	for review, the minutes of Committee meetings which haveoccurred since the last Board meeting.

ANZ is now organised around its three geographies – Australia,
New Zealand and Asia Pacific – and its global Institutional clientbusiness. Each geography focuses on two customer segments –Retail and Commercial, which are co-ordinated globally.

There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.

The new structure became effective on 1 October 2008 with the
new business model being established progressively.

The first involves all Directors including the CEO, and the second
involves only the non-executive Directors.
On a revolving basis, a Director is appointed at each Board meeting
to formally critique the meeting and this critique is presented at theend of the meeting and is minuted.
The Chief Financial Officer and the Group General Counsel andCompany Secretary are also present at all Board meetings. Membersof senior management attend Board meetings when an issue under
their areas of responsibility is being considered or as otherwise
requested by the Board.

46 ANZ Annual Report 2008

For personal use only

INTERNAL REVIEWOn 22 August 2008, ANZ released the findings of the Review Committee
which examined ANZ’s involvement in Securities Lending and its
relationship with Broker clients including the Opes Prime group.
The report followed an announcement in April 2008 that the Chief
Executive Officer would conduct a thorough review of the issues
surrounding ANZ’s Securities Lending business and publicly releaseits findings.
The Review Committee examined business practice, governanceand management accountability related to the Securities Lending
business within ANZ and developed a comprehensive remediation
plan to address its findings.
The Review Committee’s report was presented to the Board which
accepted the findings and gave its full support to the remediation
program. The report provided to the Board was also provided to theAustralian Prudential Regulation Authority (APRA) and the Australian
Securities and Investments Commission (ASIC).

BOARD COMPOSITION, SELECTION AND APPOINTMENT
The Board strives to achieve a balance of skills, knowledge,
experience, tenure and perspective among its Directors. Details
regarding the skills, experience and expertise of each Director in
office at the date of this Annual Report can be found on pages 43
to 45.
The Governance Committee (see page 51) has been delegatedresponsibility for the director nomination process. The Committee
regularly reviews the size and composition of the Board andassesses whether there is a need for any new non-executive
Director appointments.
Nominations may be provided from time to time to the Chairmanof the Governance Committee. The Committee also reviews andrecommends the process for the election of the Chairman of theBoard and reviews succession planning for the Chairman of theBoard, making recommendations to the Board as appropriate.
The Committee assesses potential new Director candidates against
Board approved selection criteria including integrity, fitness andpropriety, skills, qualifications, experience, communication
capabilities and community standing. If found suitable, and where
there is a need for any new appointments, candidates arerecommended to the Board. Otherwise, the Chairman of the Committee
maintains names of suitable candidates for succession purposes.
The Chairman of the Board is responsible for approaching potential
candidates. This process is formalised in the Board Renewal and
Performance Evaluation Policy.
The composition of the principal Board Committees is reviewed
annually by the Board.
APPOINTMENT DOCUMENTATION
Each new non-executive Director receives an appointment letteraccompanied by a:	Directors’ Handbook – The Handbook includes information on abroad range of matters relating to the role of a Director, including
details of all applicable policies; and	Directors’ Deed – Each Director signs a Deed in the form approvedby shareholders at the 2005 Annual General Meeting which covers
a number of issues including indemnity, directors’ and officers’
liability insurance, the right to obtain independent advice andrequirements concerning confidential information.
UNDERTAKING INDUCTION TRAINING
Every new Director takes part in a formal induction program which
involves the provision of information regarding ANZ’s values andculture, the Group’s governance framework, the Directors’ Code of
Conduct and Ethics, Director related policies, Board and Committee
policies, processes and key issues, financial management
and business operations. A briefing is also provided by senior
management about matters concerning their areas of responsibility.
MEETING SHARE QUALIFICATION
Non-executive Directors are required to accumulate within 5 years
of appointment, and thereafter maintain, a holding in ANZ sharesthat is equivalent to at least 100% of a non-executive Director’sbase fee (and 200% of this fee in the case of the Chairman).
ELECTION AT NEXT ANNUAL GENERAL MEETING
Subject to the provisions of ANZ’s Constitution and the Corporations
Act 2001, the Board may appoint a person as a non-executive
Director of ANZ at any time but that person must retire and, if theywish to continue in that role, must seek election by shareholders,at the next Annual General Meeting.
FIT AND PROPER
ANZ has a robust framework in place to ensure that individuals
appointed to relevant senior positions within the Group havethe appropriate fitness and propriety to properly discharge theirprudential responsibilities both on appointment and throughout
the course of their appointment.
The framework, set out in ANZ’s Fit and Proper Policy, addresses
the requirements of APRA’s Fit and Proper Prudential Standard.
It involves assessments being carried out for each Director,
relevant senior executives and the external auditor prior to a
new appointment being made. These assessments are carriedout against a benchmark of documented competencies which havebeen prepared for each role, and also involve attestations being
completed by each individual, as well as the obtaining of evidenceof material qualifications and the carrying out of checks such as
criminal record, bankruptcy and regulatory disqualification checks.
These assessments are reviewed thereafter on an annual basis.
The Governance Committee and the Board have responsibility forassessing the fitness and propriety of non-executive Directors.
The Human Resources Committee is responsible for assessing thefitness and propriety of the Chief Executive Officer and key senior
executives. The Audit Committee is responsible for assessing thefitness and propriety of the external auditor.
Fit and Proper assessments were carried out in respect of each
non-executive Director, the Chief Executive Officer, key senior
executives and the external auditor during the 2008 financial year.

Corporate Governance 47

INDEPENDENT ADVICE
In order to assist Directors in fulfilling their responsibilities, each
Director has the right (with the prior approval of the Chairman)
to seek independent professional advice regarding his/her
responsibilities at the expense of ANZ. In addition, the Boardand each Committee, at the expense of ANZ, may obtainwhatever professional advice it requires to assist in its work.

For personal use only

INDEPENDENCE AND MATERIALITY

Under ANZ’s Board Charter, the Board must contain a majority of
non-executive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out independence criteria in order to establish
whether a non-executive Director has a relationship with ANZ which
could (or could be perceived to) impede their decision-making.
All non-executive Directors are required to notify the Chairman of apotential change in their outside Board appointments. The Chairman
reviews the proposed appointments and will consult with other
Directors as the Chairman deems appropriate.
In the 2008 financial year, the Board conducted its annual review of
criteria for independence against the ASX Governance Principles and
APRA Prudential Standards, as well as the requirements of the NYSE
Corporate Governance Standards, and the US Sarbanes-Oxley Act of2002 in relation to Audit Committe member independence.
ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular criteria stipulated specifically for
Audit Committee members. The criteria and review process are both
set out in the Corporate Governance section of ANZ’s website.
In summary, a relationship with ANZ is regarded as material if areasonable person would expect there to be a real and sensible
possibility that it would influence a Director’s mind in:	making decisions on matters likely to come regularly before
the Board or its Committees;	objectively assessing information and advice given by management;	setting policy for general application across ANZ; and	generally, carrying out the performance of his or her role asa Director.

During 2008, the Board considered each non-executive Director’s
independence and concluded that the independence criteria weremet by each non-executive Director.
Directors’ biographies on pages 43 to 45 and on anz.com highlighttheir major associations outside of ANZ.
CONFLICTS OF INTEREST
Over and above the issue of independence, each Director has acontinuing responsibility to determine whether he or she has apotential or actual conflict of interest in relation to any material
matter which comes before the Board. Such a situation may arise
from external associations, interests or personal relationships.
Under the Directors Disclosure of Interest Policy and Policy for
Handling Conflicts of Interest, which was reviewed by the GovernanceCommittee during the year, a Director may not exercise any influence
over the Board if a potential conflict of interest exists. In suchcircumstances, the Director may not receive relevant Board papers
and, unless the other Directors have resolved to the contrary, may not
be present for Board deliberations on the subject, and may not voteon any related Board resolutions. These matters, should they occur,are recorded in the Board minutes.

48 ANZ Annual Report 2008

TENURE AND RETIREMENTANZ’s Constitution, consistent with the ASX Listing Rules, provides
that a non-executive Director must seek re-election by shareholders
every 3 years if they wish to continue in their role as a non-executive
Director.
It is ANZ’s view that the length of service of a non-executive
Director is not an automatic disabling criterion affecting that
Director’s independence, and this is consistent with the revised
ASX Governance Principles. However, the Governance Committee
has recently approved a revision to the Board Renewal and
Performance Evaluation Policy so that non-executive Directors will
retire once they have served a maximum of three 3-year terms after
first being elected by shareholders unless invited by the Board toextend their tenure due to special circumstances. This revised policy
applies to current non-executive Directors except where there isan agreed retirement plan that has been made public and it also
applies to future non-executive Directors.
CONTINUING EDUCATIONANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program(see page 47), Directors also receive a quarterly advice designed
to keep them abreast of matters relating to their duties andresponsibilities as Directors.
Each Committee also conducts its own continuing education
sessions from time to time as appropriate. Internal and/or external
experts are engaged to conduct all education sessions. Directors
also receive regular business briefings at Board meetings. These
briefings are intended to provide Directors with information on eacharea of ANZ’s business, in particular regarding performance, key
issues, risks and strategies for growth. In addition, Directors havethe opportunity to participate in site visits from time to time.
ACCESS TO DIRECTORSManagement is able to consult Directors as required on a regularbasis. Employees have access to the Directors directly or throughthe Company Secretary.
Shareholders who wish to communicate with the Directors may
direct correspondence to a particular Director, or to the nonexecutive Directors as a whole.

NON-EXECUTIVE DIRECTORSThe Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed three Company Secretaries.

Non-executive Director performance evaluations are conductedin two ways:

The Group General Counsel and Company Secretary is normally inattendance at all Board meetings, and provides legal advice to theBoard as and when required. He works closely with the Chairman of
the Governance Committee to develop and maintain ANZ’s corporate
governance principles, and is responsible to the Board for theCompany Secretary’s Office function.

Annual review – On an annual basis, or more frequently if
appropriate, the Chairman has a one-on-one meeting with each
non-executive Director specifically addressing the performance
criteria including compliance with the Directors’ Code of Conduct
and Ethics. To assist the effectiveness of these meetings, theChairman is provided with objective information about each Director(e.g. number of meetings attended, Committee memberships,
other current directorships etc) and a guide for discussion toensure consistency. A report on the outcome of these meetings
is provided to the Governance Committee and to the Board.

For personal use only

ROLE OF COMPANY SECRETARY

The Company Secretary is responsible for the day-to-day
operations of the Company Secretary’s Office including lodgementswith relevant Securities Exchanges and other regulators, theadministration of Board and Board Committee meetings (including
preparation of meeting minutes), the management of dividend
payments and associated share plans, the administration of theGroup’s Australian subsidiaries and oversight of the relationshipwith ANZ’s Share Registrar.
The Chief Financial Officer is also appointed as a Company Secretary.
Profiles of ANZ’s Company Secretaries can be found in the Directors’
Report on page 17.

PERFORMANCE EVALUATIONSOVERVIEW
The framework used to assess the performance of Directors isbased on the expectation they are performing their duties in amanner which should create and continue to build sustainablevalue for shareholders, and in accordance with the duties andobligations imposed upon them by ANZ’s Constitution and thelaw. This is captured in ANZ’s Board Renewal and Performance
Evaluation Policy, which was reviewed by the GovernanceCommittee and substantially revised during the year following
a best practice benchmarking review.
The performance criteria take into account each Director’s
contribution to:	the charting of direction, strategy and financial objectives for ANZ;	the monitoring of compliance with regulatory requirements andethical standards;	the monitoring and assessing of management performance inachieving strategies and budgets approved by the Board;	the setting of criteria for, and evaluation of, the Chief Executive
Officer’s performance; and	the regular and continuing review of executive succession
planning and executive development activities.

Re-election statement – Non-executive Directors when nominating
for re-election are given the opportunity to submit a written ororal statement to the Board setting out the reasons why they seek
re-election. In the non-executive Director’s absence, the Board
evaluates this statement (having regard to the performance criteria)
when it considers whether to endorse the relevant Director’s
re-election.
CHAIRMAN OF THE BOARD
An annual review of the performance of the Chairman of the Board
is facilitated by the Chairman of the Governance Committee who
seeks input from each Director individually on the performanceof the Chairman of the Board against the competencies for the
Chairman’s role approved by the Board.
The Chairman of the Governance Committee collates the input inorder to provide an overview report to the Governance Committee
and to the Board, as well as feedback to the Chairman of the Board.
THE BOARD
For the year ended 30 September 2008, the performance of theBoard was assessed using an independent external facilitator,
who sought input from each Director and certain members ofsenior management when carrying out the assessment.
The assessment was conducted in accordance with broad termsof reference agreed by the Governance Committee. The results of theassessment were discussed with the Chairman of the GovernanceCommittee who presented the results of the assessment andrecommendations to the Governance Committee and to the Board.
It is expected that externally facilitated reviews will occur approximately
every three years. The review process in the intervening years willconsider progress against any recommendations implemented arisingfrom the most recent externally facilitated review, together with any
new issues that may have arisen, and will be conducted internally.

Corporate Governance 49

MEMBERSHIP AND ATTENDANCE

Each of the principal Board Committees conducts an annual
Committee performance self-assessment to review performanceusing Guidelines approved by the Governance Committee. The
Guidelines set out that at a minimum, the self-assessments
should cover:

Each of the principal Board Committees is comprised solely of
independent non-executive Directors, has its own Charter and has
the power to initiate any special investigations it deems necessary.

For personal use only

BOARD COMMITTEES	review of the scope of the Committee’s responsibilities
and duties as enshrined in its Charter;	review of the Committee’s performance against its Charterand annual calendar of business;	review of the Committee’s performance against any goals
or objectives it set itself for the year under review;	review of major issues that faced the Committee during the year;
and	identification of future topics for training/education of theCommittee.

The outcomes of the performance self-assessments, along withplans and objectives for the new financial year, are submitted to
the Governance Committee (and, in the case of the GovernanceCommittee, to the Board) for discussion and noting.
SENIOR MANAGEMENT
Details of how the performance evaluation process is undertaken
in respect of the Chief Executive Officer (by the Board) and otherkey senior executives (by the Human Resources Committee),including how financial, operational and qualitative measures areassessed, are set out in the Remuneration Report on pages 25 to 27.
Board and relevant senior management evaluations in accordancewith the above processes have been undertaken in respect of the
2007/8 reporting period, including an independently facilitatedreview of the Board’s performance.

BOARD COMMITTEESAs set out on page 46 of this statement, the Board has the ability
under its Constitution to delegate its powers and responsibilities to
Committees of the Board. This allows the Board to spend additionaland more focused time on specific issues. ANZ’s Board has fiveprincipal Board Committees: Audit Committee, GovernanceCommittee, Human Resources Committee, Risk Committee andTechnology Committee.

Membership criteria are based on each Director’s skills andexperience, as well as his/her ability to add value and commit timeto the Committee. Composition is reviewed annually by the Board.
The Chairman is an ex-officio member of each principal Board
Committee. The Chief Executive Officer is invited to attend
Board Committee meetings as appropriate. His presence is not
automatic, however, and he does not attend any meeting where
his remuneration is considered or discussed, nor does he attend
private sessions of Committees where they meet in the absenceof management. Non-executive Directors may attend any meetingof any Committee.
Each Board Committee may, within the scope of its responsibilities,
have unrestricted access to management, employees andinformation it considers relevant and necessary to carrying out its
responsibilities under its Charter.
Each Board Committee may require the attendance of any ANZ
officer or employee, or request the attendance of any external party,
at meetings as appropriate.
MEETINGS
The principal Board Committees plan their annual agenda
following a process approved by the Board. The executives who
are appointed to assist the Chairman of each Board Committee
liaise as a group in order to review the calendars of businessprepared by each Committee and identify any potential gaps andunnecessary overlaps between the Committees. Any issues arisingfrom this are reported to, and resolved by, the relevant Committee
Chairmen. The results of this process are then reported to theGovernance Committee to assist the Board in fulfilling its oversight
responsibilities in respect of the delegations it has made to thevarious Board Committees.
Committees report at the next Board meeting through the Committee
Chairmen. When there is a cross-Committee item, the Committees
will communicate with each other through their Chairmen.
Throughout the year, Committee Chairmen also conduct agenda
planning meetings involving relevant stakeholders to take accountof emerging issues.

ANZ BOARD COMMITTEE MEMBERSHIPS – from 1 October 2007 – 30 September 2008
Audit

Governance

Human Resources

Risk

Technology

Mr D E Meiklejohn C, FE

Mr I J Macfarlane C

Ms M A Jackson C

Mr J P Morschel C

Dr G J Clark C

Ms M A Jackson FE

Dr G J Clark

Mr J P Morschel

Mr I J Macfarlane

Mr J K Ellis

Mr J K Ellis

Mr D E Meiklejohn

Mr C B Goode (ex-officio)

Mr D E Meiklejohn

Mr I J Macfarlane

Mr C B Goode (ex-officio)

Mr C B Goode (ex-officio)

Mr C B Goode (ex-officio)

Mr C B Goode (ex-officio)

C – Chairman, FE – Financial Expert

50 ANZ Annual Report 2008

GOVERNANCE COMMITTEE

The Audit Committee is responsible for oversight and monitoring of:

The Governance Committee is responsible for:

	ANZ’s financial reporting principles and policies, controls and	identifying and recommending prospective Board members andFor personal use only

AUDIT COMMITTEE

procedures;

succession planning for the position of Chairman (see page 47);	the work of Internal Audit which reports directly to the Chairman	reviewing and approving procedures for the oversight andof the Audit Committee (refer to Internal Audit on page 53 for more
information);

evaluation of the performance of the Board, Board Committees
and non-executive Directors (see page 49);

	the Audit Committees of significant subsidiary companies;	ensuring an appropriate Board and Board Committee structure	prudential supervision procedures required by regulatory bodies
relating to financial reporting; and	the integrity of ANZ’s financial statements, compliance with related
regulatory requirements and the independent audit thereof.

The Audit Committee is also responsible for:	the appointment, evaluation and oversight of the external auditor,
including reviewing their independence and fitness and propriety;	compensation of the external auditor; and	where appropriate, replacement of the external auditor.

Under the Committee Charter, all members of the Audit Committee
must be financially literate.
Mr Meiklejohn (Chair) and Ms Jackson (member) were determined
to be ‘financial experts’ for the 2008 financial year under thedefinition set out in the US Sarbanes-Oxley Act of 2002. Referto pages 44 and 45 for their qualifications. While the Board has
determined that Mr Meiklejohn and Ms Jackson have the necessary
attributes to be ‘financial experts’ within the meaning of US laws,
it is important to note that they have no responsibilities additional
to those of other members of the Audit Committee because of this.
The Audit Committee meets with the external auditor without
management being present. The Chairman of the Audit Committee
meets separately and regularly with the Group General Manager,
Internal Audit, the external auditor and management.
The Group General Manager, Financial Reporting and Policy has been
appointed as the executive responsible for assisting the Chairman of
the Committee.
Substantive areas of focus in the 2008 financial year included:
	Internal Audit – The Committee approved the annual plan forinternal audit and kept progress against this plan under regularreview. Adjustments to the plan were made during the year toaccommodate high priority items.
	Regulatory developments – Domestic and international
accounting and financial reporting developments were reported
to the Committee outlining relevant changes and implications
for ANZ.

	Financial Reporting Governance Program – Notwithstanding that ANZ
has ceased to be registered with the SEC in the US, the Committee
requested management ensure that ANZ’s financial governanceframework retained the beneficial aspects of US regulation. The
2008 Program involved increased management testing with Internal
Audit providing an oversight role and the Committee received regularFinancial Reporting Governance updates providing comment on key
themes, areas of focus and status.
	Whistleblowing – The Committee oversaw developments in respectof amendments to the Group’s Whistleblower Protection Policy.

is in place;	reviewing and approving the Charters for each Board Committee
except its own, which is reviewed and approved by the Board; and	reviewing the development of and approving corporate
governance policies and principles applicable to ANZ.
The Committee previously had responsibility for reviewing andapproving management’s proposed corporate responsibility
objectives and strategies for ANZ. In future, this area will be thedirect responsibility of the Board.
The Group General Counsel and Company Secretary has been
appointed as the executive responsible for assisting the Chairmanof the Committee.
Substantive areas of focus in the 2008 financial year included:
	Governance framework –The Committee reviewed the Board’s
governance framework and principles including in relation to
Board composition, size, Director tenure, outside commitments,
nomination and appointment procedures, and Director
independence criteria.
	Ethics Framework – The Committee received a report on workin relation to the development of a new Ethics Framework to besupported by an updated Code of Conduct and Ethics, related
policies, training and more frequent acknowledgement andacceptance by employees.
	Asia Pacific – The Committee received a report on the review
by the Asia Pacific business of its governance practices generally,
including details of various governance initiatives that are to be
progressively implemented.
	Board and Committee Performance Evaluations – The Board
Renewal and Performance Evaluation Policy was comprehensively
reviewed and revamped. External governance consultants werecommissioned to conduct a review of the Board’s performancewith the results presented to the Committee.
	Review and approval of Group policies – The Committee approved
amendments to existing Group policies including the Continuous
Disclosure Policy and Securities Trading Policy.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee is responsible for reviewing andapproving the Group’s compensation programs including any equitybased programs, compensation levels and policy guidelines (details
in the Remuneration Report on pages 20 to 41).
The Committee also evaluates the performance of and approves thecompensation for Board Appointees and makes recommendations
to the Board on matters relating to the Chief Executive Officer(details in the Remuneration Report on pages 20 to 41).

Corporate Governance 51

	Basel II – The Committee oversaw ANZ’s Basel II accreditation from
APRA and the Reserve Bank of New Zealand. The Committee also
focused on the delivery of Pillar 3 Market Disclosures required for2008 financial year reporting.

For personal use only

In addition, the Committee considers and approves key executive
appointments, and senior executive succession plans as well as
policies with respect to health and safety issues and diversity.
The Group Managing Director, Human Resources has been appointed as
the executive responsible for assisting the Chairman of the Committee.

	Securities Lending Review – The Committee received the results of
the Review and will continue to focus attention on the remediationof issues raised in the Review.

Substantive areas of focus in the 2008 financial year included:	Management roles and performance – The Committee reviewed
the performance of the CEO and CEO’s direct reports, and set
targets for 2009. The Committee held a succession planningsession on Management Board roles and Business Critical roles.
	Fitness and Propriety – The Committee completed initial(where applicable) and annual Fit and Proper assessmentsof Board Appointees.
	Remuneration – The Committee approved the grant of ESAP
$1000 shares to employees, reviewed and approved a new
bonus framework for Institutional, reviewed and approved
changes to the ANZERS Bonus Plan, and reviewed and approved
changes to the reward structure for Management Board.

	Provisioning – The Committee regularly reviewed provisioning inlight of the global financial crisis.
	Liquidity – The Committee performed an ongoing and detailed
review of the Group’s liquidity and funding positions and risks.
TECHNOLOGY COMMITTEEThe Technology Committee assists the Board in the effective dischargeof its responsibilities in relation to technology and operations
related matters. The Committee is responsible for the oversight andevaluation of new projects in technology above $50 million andsecurity issues relevant to ANZ’s technology processes and systems.
It is also responsible for the review and approval of management’s
recommendations for long-term technology and operations planningand the overall framework for the management of technology risk.

	HR matters – The Committee received annual updates on
Superannuation, Health & Safety and Diversity.

The Group Managing Director, Operations, Technology and Shared
Services has been appointed as the executive responsible forassisting the Chairman of the Committee.

For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 20 to 41.
RISK COMMITTEE

Substantive areas of focus in the 2008 financial year included:

The Risk Committee is responsible for overseeing, monitoring andreviewing the Group’s risk management principles and policies,
strategies, processes and controls including credit, market, liquidity,
balance sheet, operational risk and compliance frameworks.

	Technology Architecture – The Committee monitored the definitionand execution of the Bank’s technology architecture strategy.
	Future needs – The Committee received reports on the futuretechnology investment requirements for the Group and on theGroup’s future IT operating model.
	Projects – The Committee received regular reports monitoring
the progress of ANZ’s major technology and property projects
from both a project management and a cost perspective. The
Committee also received a report on ANZ’s change and project
management capability.
	833 Collins Street – The Committee received specific reportson the progress of the building of the Group’s new Melbourne
headquarters and reviewed the technology strategy for the
new building.

It is also authorised to approve credit transactions and other related
matters beyond the approval discretion of executive management.
The Chief Risk Officer is the executive responsible for assisting the
Chairman of the Committee.
Substantive areas of focus in the 2008 financial year included:
	Risk Appetite Framework – The Committee approved enhancements
to and further development of the Risk Appetite Framework.

Board

Audit
Committee

GovernanceCommittee

Human
Resources
Committee

Risk
Committee

Technology
Committee

Executive
Committee

SharesCommittee

Committeeof the Board

A

B

A

B

A

B

A

B

A

B

A

B

A

B

A

B

A

B

G J Clark

13

13

–

–

4

4

–

–

–

–

3

3

–

–

–

–

–

–

J K Ellis

13

13

8

8

–

–

–

–

–

–

3

3

–

–

–

–

2

2

C B Goode

13

13

8

8

4

4

6

5

6

6

3

3

1

1

7

7

5

5

M A Jackson

13

13

8

8

–

–

6

6

–

–

–

–

1

1

5

5

–

–

I J Macfarlane

13

12

–

–

4

4

–

–

6

6

3

2

1

1

–

–

–

–

D E Meiklejohn

13

13

8

8

4

4

–

–

6

6

–

–

1

1

1

1

3

3

J P Morschel

13

13

–

–

–

–

6

6

6

6

–

–

1

1

1

1

–

–

M R P Smith

13

13

–

–

–

–

–

–

–

–

–

–

1

1

4

4

4

4

Column A – Indicates the number of meetings the Director was eligible to attend.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio member of the Audit, Governance, Human Resources, Risk and Technology Committees.

52 ANZ Annual Report 2008

External audit

In addition to the five principal Board Committees, the Board hasconstituted a Shares Committee and an Executive Committee, eachconsisting solely of Directors, to assist in carrying out specific tasks.

The external auditor’s role is to provide an independent opinion that
ANZ’s financial reports are true and fair and comply with applicableregulations. The external auditor performs an independent audit
in accordance with Australian Auditing Standards. The Audit
Committee oversees ANZ’s Policy on Relationship with the External
Auditor. Under the Policy, the Audit Committee is responsible
for the appointment (subject to ratification by shareholders),
compensation, retention and oversight of the external auditor.
The Policy also stipulates that the Audit Committee:

For personal use only

ADDITIONAL COMMITTEESThe Executive Committee has the full power of the Board and isconvened as necessary between regularly scheduled Board meetings
to deal with urgent matters. The Shares Committee has the power
to administer ANZ’s Employee Share Plan and Employee Share
Option Plan. The Board also forms and delegates authority toad-hoc Committees of the Board as and when needed to carry out
specific tasks.

RISK MANAGEMENT AND COMPLIANCE
The Board is principally responsible for establishing risk tolerance,
approving related strategies and policies, and for the oversight ofpolicy compliance and the effectiveness of the risk and compliancemanagement framework that is in place.
The Risk Committee oversees the Group’s risk management policies
and controls, and may approve credit transactions and other related
matters beyond the approval discretion of executive management.
On a day-to-day basis, the various risks inherent in ANZ’s operations
are managed by both Group Risk and each business.
For further information on how ANZ manages its material businessrisks, please see the disclosures in relation to AASB 7 “Financial
Instruments: Disclosure” in the notes to the financial statements
and the Corporate Governance section of anz.com.
During the year, management has reported to the Risk Committee
as to the effectiveness of ANZ’s risk and compliance management
framework and the management of ANZ’s material business risks.

AUDIT AND FINANCIAL GOVERNANCE
Internal Audit
Internal Audit reviews various areas of ANZ’s business andoperations each year pursuant to an annual plan that is approvedby the Audit Committee. Through these reviews, Internal Audit
seeks to assess the effectiveness of the design and operation of
the Group’s risk and control framework. It operates under a Charter
from the Audit Committee that gives it unrestricted access to review
all activities of the Group. The Group General Manager, Internal
Audit reports to the Chairman of the Audit Committee. The Audit
Committee reviews the performance of the Group General Manager,
Internal Audit.
A risk-based audit approach is used which aims to focus on thehigher risk activities in each business. All audits are conducted ina manner that conforms to international auditing standards. Audit
results also influence incentive compensation of business heads.
The Audit Committee receives formal reports on significant issues.
Internal Audit plays an active role in connection with the compliancerequirements of supervisory regulatory authorities. Internal Audit
also works collaboratively with the external auditor to enhance theaudit scope. The Risk Committee also receives a quarterly reportfrom Internal Audit.

	pre-approves all audit and non-audit services;	regularly reviews the independence of the external auditor; and	evaluates the effectiveness of the external auditor.
The Policy also requires that all services provided by the external
auditor, including the non-audit services that may be provided
by the external auditor, must be in accordance with the following
principles:	the external auditor should not have a mutual or conflicting
interest with ANZ;	the external auditor should not audit its own work;	the external auditor should not function as part of management
or as an employee; and	the external auditor should not act as an advocate of ANZ.
The Policy, which sets out in detail the types of services the external
auditor may and may not provide, can be found on the Corporate
Governance section of anz.com.
Details of the non-audit services provided by the external auditor,
KPMG, during the 2008 financial year, including their dollar
value, together with the statement from the Board as to theirsatisfaction with KPMG’s compliance with the related independence
requirements of the Corporations Act 2001, are set out in the
Directors’ Report on page 18.
In addition, ANZ requires a two year period before any former partner
or employee of the external auditor is appointed as a Director or
Senior Executive of ANZ. The lead partner of the external auditor
is required to rotate off the ANZ audit after 5 years and cannot
return for a further five years. Certain other senior audit staff are
required to rotate off after a maximum of seven years. Any potential
appointments of ex-partners or ex-employees of the external auditor
as ANZ finance staff, at senior management level or higher, must
be pre-approved by the Chairman of the Audit Committee.
As disclosed in previous Annual Reports, the US Securities andExchange Commission (SEC) commenced an inquiry into non-audit
services provided by ANZ’s auditor, KPMG. ANZ has provided theinformation requested by the SEC. This inquiry has not concluded.
Should the SEC determine that services provided by KPMG did notcomply with the US auditor independence rules, the SEC may seek
sanctions, the nature and amount of which are not known.
Whilst ANZ cannot predict the outcome of the inquiry, based on
information currently available, ANZ does not believe it will havea material adverse effect on the Company.

Corporate Governance 53

	ANZ Use of Systems, Equipment and Information Policy;

As previously noted, the Audit Committee of the Board oversees
ANZ’s financial reporting policies and controls, the integrity of
ANZ’s financial statements, the relationship with the external
auditor, the work of Internal Audit, and the Audit Committees ofvarious significant subsidiary companies.

ANZ Global Fraud and Expense Policy;

For personal use only

Financial Controls

ANZ has in place a Financial Reporting Governance (FRG) Program
which evaluates the design and tests the operation of key financial
reporting controls, including Company-level controls, period-end
controls, process-level controls, and IT general controls. In addition,
Preparers’ Statements in the form of half-yearly certifications
are completed by senior management, including senior financeexecutives.
These Statements comprise representations and questions
about financial results, disclosures, processes and controls
and are aligned with ANZ’s external obligations. The process is
independently evaluated by Internal Audit and tested under the
FRG Program. Any issues arising from the evaluation and testing
are reported to the Audit Committee. This process assists theChief Executive Officer and Chief Financial Officer in making
the certifications to the Board under the Corporations Act and
ASX Governance Principles as set out in the Directors’ Reporton page 18.

ETHICAL AND RESPONSIBLE DECISION-MAKINGCODES OF CONDUCT AND ETHICS
ANZ has two main Codes of Conduct and Ethics, the Employee
Code and the non-executive Director Code. These Codes provide
employees and Directors with a practical set of guiding principles
to help them make decisions in their day to day work. Having
two Codes recognises the different responsibilities that Directors
have under law but enshrines the same values and principles.
The Codes embody honesty, integrity, quality and trust, andemployees and Directors are required to demonstrate thesebehaviours and comply with the Codes whenever they are
identified as representatives of ANZ.
The principles underlying ANZ’s Codes of Conduct and Ethics are:	We act in ANZ’s best interests and value ANZ’s reputation;
We act with honesty and integrity;	We treat others with respect, value difference and maintaina safe workplace;	We identify conflicts of interest and manage them responsibly;	We respect and maintain privacy and confidentiality;	We do not make or receive improper payments, benefits or gains;	We comply with the Codes, the law and ANZ’s policies andprocedures; and	We immediately report any breaches of the Codes, the law
or ANZ policies and procedures.
The Codes are supported by the following detailed policies thattogether form ANZ’s Conduct and Ethics Policy Framework:
	ANZ Anti-Money Laundering and Counter-Terrorism Financing
Program;

54 ANZ Annual Report 2008

ANZ Group Expense Policy;	ANZ Equal Employment Opportunity, Bullying and Harassment Policy;
ANZ Health and Safety Policy;	ANZ Global Employee Securities Trading and Conflicts of Interest
Policy;ANZ Global Anti-Bribery Policy; and	ANZ Global Whistleblower Protection Policy.
These policies and the Codes have recently been redrafted toclearly specify all obligations that are common to each staff
member working at ANZ. The revised ANZ Conduct and Ethics
Policy Framework was launched on 31 October 2008.
Within two months of commencing employment with ANZ, andthereafter on an annual basis, all employees will be required
to sign up to the principles of the Employee Code, including key
relevant extracts of the policies set out above, to show that they
have understood and agree to comply with their obligations.
Directors’ compliance with the non-executive Directors’ Codecontinues to form part of their annual performance review.

SECURITIES TRADING
ANZ’s Global Employee Securities Trading and Conflicts of Interest
Policy prohibits trading in ANZ securities or the securities of othercompanies by all employees, Directors, contractors and consultants
engaged by ANZ who are aware of unpublished price-sensitive
information.
The Policy specifically prohibits restricted employees trading in
ANZ securities during ‘blackout periods’ leading up to the day
following the half-yearly and annual results announcements.
Non-executive Directors are required to seek approval from the
Chairman in advance of any trading in ANZ securities. The Chairmanof the Board is required to seek approval from the Chairman of
the Governance Committee. Senior Executives and other restrictedemployees are also required to seek approval before they, or theirassociates, trade in ANZ securities.
It is a condition of the Policy and of the grant of employee shareoptions (including Performance Rights) and deferred shares thatno schemes are entered into by any employee that specificallyprotect the value of such shares, options and Performance Rights
before the shares have vested or the options or Performance Rights
have entered their exercisable period. Any breach of this prohibition
would constitute a breach of the grant conditions and would result in
the forfeiture of the relevant shares, options or Performance Rights.
Directors are also prohibited from providing ANZ securities as
security in connection with any financing arrangement, including
but not limited to margin loans or similar arrangements.

For personal use only

WHISTLEBLOWER Protection
The ANZ Global Whistleblower Policy provides a mechanism by which
ANZ employees may voice serious concerns or escalate serious
matters on a confidential basis, without fear of reprisal, dismissal or
discriminatory treatment.
ANZ employees can make complaints under the Policy to designated
Whistleblower Protection Officers, or via an independently managed
hotline that was introduced as part of the new Conduct and Ethics
Policy Framework that was launched recently.

COMMITMENT TO SHAREHOLDERS
Shareholders are the owners of ANZ and our approaches described
below are enshrined in ANZ’s Shareholder Charter, which wasreviewed by the Governance Committee during the year. A copy of
the Shareholder Charter can be found on the Corporate Governancesection of anz.com.

COMMUNICATION
In order to make informed decisions about ANZ, and to communicate
views to ANZ, shareholders should have an understanding of ANZ’sbusiness operations and performance.
ANZ encourages shareholders to take an active interest in ANZ, andseeks to provide shareholders with quality information in a timely
fashion generally through ANZ’s reporting of results, ANZ’s Annual
Report and Shareholder Review, briefings, half yearly newslettersand via its dedicated shareholder site on anz.com. ANZ strives
for transparency in all its business practices, and recognises theimpact of quality and transparent disclosure on the trust andconfidence of the shareholder, the wider market and the community.
To this end, ANZ, outside of its scheduled result announcements,
issued three Trading Updates to the market during the financial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in the Shareholder Review,the half yearly shareholder newsletters and the shareholders sectionof anz.com.

MEETINGS
To allow as many shareholders as possible to have an opportunity
to attend shareholder meetings, ANZ rotates meetings around capitalcities and makes them available to be viewed online using webcast
technology.
Further details on meetings and presentations held throughout thisfinancial year are available on anz.com > About ANZ > Shareholders >Presentations. Prior to the Annual General Meeting, shareholders
are provided the opportunity to submit any questions they have for
the Chairman or Chief Executive Officer to enable key common themes
to be considered.
The external auditor is present at ANZ Annual General Meetings andavailable to answer shareholder questions on any matter that concerns
them in their capacity as auditor, including in relation to the conductof the audit and the preparation and content of the auditor’s report.
The letter of appointment, which has been agreed to and signed by
all non-executive Directors, states that Directors are also expected toattend and be available to meet shareholders at the Annual General
Meeting each year.

Shareholders have the right to vote on various resolutions put
to a meeting. If shareholders are unable to attend a meeting
they can submit their proxies via post or electronically throughwww.investorvote.com.au. Where votes are taken on a poll, which
is usual ANZ practice, ANZ appoints an independent party to verify
the results, normally KPMG, which are reported as soon as possible
to the ASX and posted on anz.com.

CONTINUOUS DISCLOSURE
ANZ’s practice is to release all price-sensitive information in a timely
manner and as required under the ASX Listing Rules and then to all
relevant Securities Exchanges on which ANZ’s securities are listed,
and to the market and community generally through ANZ’s media
releases, website and other appropriate channels.
Through ANZ’s Continuous Disclosure Policy, ANZ demonstrates its
commitment to continuous disclosure. The Policy reflects relevant
obligations under applicable securities exchange listing rules andlegislation. For disclosure purposes, price-sensitive information
is information that a reasonable person would expect to have amaterial effect on the price or value of ANZ’s securities.
Designated Disclosure Officers have responsibility for reviewing
proposed disclosures and making decisions in relation to what
information can be or should be disclosed to the market. Each ANZ
employee is required to inform a Disclosure Officer regarding any
potentially price-sensitive information concerning ANZ as soon as
they become aware of it.
The Continuous Disclosure Oversight Sub-Committee also meets ona regular basis each quarter to overview the effectiveness of ANZ’ssystems and procedures for achieving compliance with applicableregulatory requirements in relation to the disclosure of price-sensitive
information. This Sub-Committee reports to the Governance Committeeof the Board on an annual basis.
In carrying out their role, the Disclosure Officers recognise ANZ’scommitment to achieving best practice in terms of disclosure byacting in accordance with the spirit, intention and purposes of theapplicable regulatory requirements and by looking beyond form
to substance.

DONATIONS
During the year ended 30 September 2008, ANZ contributed over
$10 million to charitable organisations. This included a contribution
in excess of $3 million to key Financial Literacy and Inclusion partners
together with whom ANZ has developed the successful MoneyMinded,
Saver Plus and Progress Loans programs. The community partners
deliver these programs in over 20 communities nationally, reachingover 45,000 people in the year ended 30 September 2008. For more
information on this, go to www.anz.com/community. Financial Literacy
and Inclusion is the key strategic focus for ANZ’s community investment
work, targeting especially the most vulnerable Australians who may
be at risk of financial exclusion.
In addition, for the year to 30 September 2008, ANZ donated $50,000
to the Liberal Party and $50,000 to the Australian Labor Party.

Corporate Governance 55

For personal use only

Shareholder
Information

Ordinary shares
At 7 October 2008, the twenty largest holders of ordinary shares held 1,082,202,140 ordinary shares, equal to 53.03% of the total issued
ordinary capital.
Name

Number of shares%

1. 	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2. J P MORGAN NOMINEES AUSTRALIA LIMITED
3. NATIONAL NOMINEES LIMITED
4. ANZ NOMINEES LIMITED (CASH INCOME A/C)
5. CITICORP NOMINEES PTY LIMITED
6. COGENT NOMINEES PTY LIMITED
7. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (PIPOOLED A/C)
8. AMP LIFE LIMITED
9. QUEENSLAND INVESTMENT CORPORATION
10. UBS WEALTH MANAGEMENT AUSTRALIANOMINEES PTY LTD
11. CITICORP NOMINEES PTY LIMITED(CFS WSLE GEARED SHR FND A/C)

284,041,518
250,281,276
235,282,402
62,287,665
57,246,270
32,602,490

13.92
12.26
11.53
3.05
2.81
1.60

26,293,267
21,785,483
19,246,821

1.29
1.07
0.94

14,487,974

0.71

12,982,106

0.64

Name

Number of shares%

10,741,688
10,229,429
7,334,234

0.53
0.50
0.36

7,317,762

0.36

6,626,836
6,359,986
5,881,296

0.32
0.31
0.29

5,610,952

0.27

5,562,685

0.27

1,082,202,140

53.03

12. CITICORP NOMINEES PTY LIMITED(CFS WSLE IMPUTATION FND A/C)
13. AUSTRALIAN REWARD INVESTMENT ALLIANCE
14. COGENT NOMINEES PTY LIMITED (SMP ACCOUNTS)
15. CITICORP NOMINEES PTY LIMITED(CFS IMPUTATION FND A/C)
16. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (BKCUST A/C)
17. UBS NOMINEES PTY LTD
18. ANZEST PTY LTD (DEFERRED SHARE PLAN A/C)
19. 	HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED – A/C 3
20. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED

Total

Distribution of shareholdings
At 7 October 2008
Range of shares

Number of holders% of holders

Number of shares% of shares

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

219,032
127,00918,75011,192
463

58.18
33.74
4.98
2.97
0.13

93,841,793
281,938,153
131,293,749
234,522,550
1,299,080,218

4.60
13.82
6.43
11.49
63.66

Total

376,446

100.002,040,676,463

100.00

At 7 October 2008:
there were no entries in the register of Substantial Shareholdings;
the average size of holdings of ordinary shares was 5,421 (2007: 5,706) shares; andthere were 10,095 holdings (2007: 5,322 holdings) of less than a marketable parcel (less than $500 in value or 28 shares based on the market price of $18.15),
which is less than 2.69% of the total holdings of ordinary shares.

Voting rights of ordinary shares
The Constitution provides for votes to be cast:i) on show of hands, 1 vote for each shareholder; andii) on a poll, 1 vote for each fully paid ordinary share.

56 ANZ Annual Report 2008

For personal use only

ANZ Convertible Preference Shares (ANZ CPS)
At 7 October 2008, the twenty largest holders of ANZ CPS held 3,134,894 securities, equal to 28.99% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIANOMINEES PTY LTD
2. UBS NOMINEES PTY LTD
3. J P MORGAN NOMINEES AUSTRALIA LIMITED
4. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (MLCI A/C)

5.	HARMAN NOMINEES PTY LTD(HARMAN FAMILY A/C)
6. UCA CASH MANAGEMENT FUND LTD
7.	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

8. ANZ NOMINEES LIMITED (CASH INCOME A/C)
9. CITICORP NOMINEES PTY LIMITED
10. GILLMAN PTY LIMITED
11. NATIONAL NOMINEES LIMITED

Numberof securities%

974,560

9.01

259,000
257,309

2.40
2.38

243,8802.26

200,000
162,790139,029
99,792
93,11589,00085,658

1.85
1.51
1.29
0.92
0.86
0.82
0.79

Name

12. NETWEALTH INVESTMENTS LIMITED(WRAP SERVICES A/C)
13. 	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED– A/C 2
14. CITICORP NOMINEES PTY LIMITED(CFSIL CFS WS ENH YIELD A/C)
15. COGENT NOMINEES PTY LIMITED
16. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (NMSMT A/C)
17. BALLARD BAY PTY LTD (BALLARD BAYDISCRETIONARY AC)
18. SPINETTA PTY LTD
19. GOWING BROS LIMITED
20. WROXBY PTY LTD

Total

Numberof securities%

82,4900.76

77,0000.71

62,00060,6500.57
0.5656,2110.52

50,00050,00048,00044,410

0.46
0.46
0.45
0.41

3,134,894

28.99

Distribution of ANZ CPS holdings
At 7 October 2008
Range of securities

Number of holders% of holders

Number of securities% of securities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

11,364
840
104
74
7

91.73
6.78
0.84
0.60
0.05

3,452,255
2,034,425
881,480
2,207,396
2,236,568

31.93
18.82
8.15
20.42
20.68

Total

12,389100.0010,812,124

100.00

At 7 October 2008: There were no holdings of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $98.00).

Voting rights of ANZ CPS
An ANZ CPS does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS;ii) on a proposal that affects the rights attached to the ANZ CPS;iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS;iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a Divided remains unpaid.
On a resolution or proposal on which an ANZ CPS holder is entitled to vote, the ANZ CPS holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS held.

Shareholder Information 57

American Depositary Receipts

At the Annual General Meeting in January 1994, shareholders
approved an aggregate limit of 7% of all classes of shares andoptions, which remain subject to the rules of a relevant incentive
plan, being held by employees and directors. At 30 September 2008
participants held 1.52% (2007: 1.81%) of the issued shares andoptions of ANZ under the following incentive plans:

Australia and New Zealand Banking Group Limited (ANZ) has
American Depositary Receipts (ADRs) representing American
Depositary Shares (ADSs) that are traded on the over-the counter(“OTC”) securities market on the Pink Sheets electronic platform
operated by Pink Sheets LLC in the United States under the ticker
symbol: ANZBY and the CUSIP number: 05258304.

ANZ Employee Share Acquisition Plan;

With effect from 23 July 2008, the ADR ratio changed from one
ADS representing five ANZ ordinary shares to one ADS representing
one ANZ ordinary share.

For personal use only

Employee shareholder information

ANZ Employee Share Save Scheme;
ANZ Share Option Plan;ANZ Directors’ Share Plan; andANZ Directors’ Retirement Benefit Plan.

Stock exchange listings
Australia and New Zealand Banking Group Limited’s ordinary sharesare listed on the Australian Securities Exchange and the New Zealand
Stock Exchange.
The Group’s other stock exchange listings include:	Australian Securities Exchange – ANZ Convertible Preference Shares(ANZ CPS) [Australia and New Zealand Banking Group Limited];senior and subordinated debt [Australia and New Zealand Banking
Group Limited]; hannel Islands Stock Exchange – Senior debt [ANZ Jackson FundingC
2 Limited, ANZ Jackson Funding 3 Limited and ANZ Jackson Funding
4 Limited ] and subordinated debt [ANZ Jackson Funding PLC]

London Stock Exchange – Non-cumulative mandatory convertible
stapled securities (UK Stapled Securities) [Australia and
New Zealand Banking Group Limited]; and senior and subordinateddebt [Australia and New Zealand Banking Group Limited];	Luxembourg Stock Exchange – Subordinated debt [Australia and
New Zealand Banking Group Limited]; and non-cumulative Trust
Securities (Euro Trust Securities) [ANZ Capital Trust III];New Zealand Stock Exchange – Senior and subordinated debt andperpetual callable subordinated notes [ANZ National Bank Limited];andSwiss Stock Exchange – Senior debt [Australia and New Zealand
Banking Group Limited and ANZ National (Int’l) Limited].

58 ANZ Annual Report 2008

The Bank of New York Mellon Corporation (“BNY Mellon”) is the
Depositary for the Company’s ADR program in the United States.
Holders of the Company’s ADRs should deal directly with BNY Mellon
on all matters relating to their ADR holdings, by telephone on
1-888-269-2377 (for callers within the US), 1-212-815-3700 (forcallers outside the US) or by email to shareowners@bankofny.com.

ANZ StEPSANZ Stapled Exchangeable Preferred Securities (“ANZ StEPS”)
were stapled securities with each security comprising a preference
share in ANZ and an unsecured senior note issued by ANZ Holdings(New Zealand) Limited and were listed on the Australian Securities
Exchange (ASX). All ANZ StEPS were converted into ANZ ordinary
shares on 15 September 2008.

US Trust Securities
In November 2003, ANZ issued 1.1 million Fixed Rate Noncumulative Trust Securities (“US Trust Securities”) at an issue priceof USD1,000 each in two tranches through ANZ Capital Trust I or
ANZ Capital Trust II (formed in the State of Delaware). Each US Trust
Security is a stapled security comprising a preference share in ANZ
and an unsecured note issued by Samson Funding Limited. Prior
to a conversion event, the preference share and note components
of a US Trust Security cannot be separately traded. After 15 January2010 and 15 December 2013, ANZ may redeem the USD350 million
US Trust Securities issued through ANZ Capital Trust I and the
USD750 million US Trust Securities issued through ANZ Capital Trust
II respectively. If ANZ fails to redeem, the US Trust Securities may
convert into ANZ ordinary shares at the discretion of the holder.

ANZ CPSIn December 2004, ANZ issued 500,000 Floating Rate Noncumulative Trust Securities (“Euro Trust Securities”) at an issue
price of ¤1,000 each through ANZ Capital Trust III (formed in
the State of Delaware). Each Euro Trust Security is a stapled
security comprising a preference share in ANZ and an unsecured
subordinated note issued by ANZ Jackson Funding PLC. The Euro
Trust Securities are listed on the Luxembourg Stock Exchange. The
unsecured subordinated notes are listed on the Channel Islands
Stock Exchange. Prior to a conversion event, the preference shareand subordinated note components of a Euro Trust Security cannot
be separately traded.

On 30 September 2008, ANZ issued 10,812,124 Convertible
Preference Shares (“ANZ CPS”) at an issue price of $100 each.
ANZ CPS are floating-rate and non-cumulative and will mandatorily
convert into ANZ ordinary shares on the Mandatory Conversion Date.
However, ANZ may elect for a third party to purchase the ANZ CPS
rather than delivering the ANZ ordinary shares issued on conversion
to the holder. The ANZ CPS are listed on the Australian Securities
Exchange. The Mandatory Conversion Date is 16 June 2014 or eachfollowing quarterly dividend payment date provided that all of themandatory conversion conditions are satisfied.

For personal use onlyEuro Trust Securities

UK Stapled Securities
In June 2007, ANZ issued 9,000 non-cumulative stapled securities(“UK Stapled Securities”) at an issue price of £50,000 each. Each
UK Stapled Security is a stapled security comprising a preference
share in ANZ and an unsecured subordinated note issued by ANZ
through its New York branch. The UK Trust Securities are listed on the
London Stock Exchange. Prior to a conversion event, the preference
share and subordinated note components of the UK Stapled
Securities cannot be traded separately. The UK Stapled Securities
will mandatorily convert into ANZ ordinary shares on 15 June 2012.
However, the mandatory conversion is deferred for five years if theconversion conditions are not satisfied.

Convertible Notes
On 26 September 2008, ANZ through its New York branch issued
1,200 Convertible Notes at an issue price of $500,000 each. The
Convertible Notes are perpetual, subordinated and non-cumulative,
pay floating rate interest payments and will convert into ANZ ordinary
shares on 28 September 2009 or each following quarterly interest
payment date, at the holders option, or earlier following theoccurrence of certain events. Subject to APRA approval, ANZ may
redeem the Convertible Notes on any monthly interest payment
date on or after 29 December 2008 or following the occurrenceof certain events.

Shareholder Information 59

Financial Report

For personal use only

Income statements for the year ended 30 September

Income statements for the year ended 30 September

Interest income
Interest expense

Consolidated

The Company

Note

2008
$m

2007
$m

2008
$m

2007
$m

3
4

32,604(24,754)

26,210(18,908)

23,634(18,238)

17,809(13,148)

7,850

7,302

5,396

4,661

Net interest income
Other operating income
Share of joint venture profit from ING Australia and ING New ZealandShare of associates’ profit

3
3
3

3,948
143
218

3,779
172
87

4,437
–
–

3,735
–
–

Operating income
Operating expenses

4

12,159(5,696)

11,340(4,953)

9,833(4,300)8,396(3,623)

Profit before credit impairment and income tax
Provision for credit impairment

16

6,463
(1,948)

6,387
(522)

5,533
(1,573)

4,773
(344)

4,515

5,865

3,960

4,429

Profit before income tax
Income tax expense(1,188)(1,678)

(624)

(878)

Profit for the year

3,327

4,187

3,336

3,551

Comprising:
Profit attributable to minority interests
Profit attributable to shareholders of the Company

8
3,319

7
4,180

–
3,336

–
3,551

170.4
162.2
136

224.1
218.3
136

n/a
n/a
136

n/a
n/a
136

Earnings per ordinary share (cents)
Basic
DilutedDividend per ordinary share (cents)

6

8
8
7

The notes appearing on pages 64 to 175 form an integral part of these financial statements.
The results of 2008 include the following items:
Gain arising from the allocation of shares in Visa Inc. measured at fair value ($248 million after tax, tax expense: $105 million), Company ($174 million after tax, tax expense: $105 million).
Transformation costs associated with an organisational transformation ($152 million after tax, tax expense: $66 million), Company ($127 million after tax, tax expense: $54 million).
n	An expense associated with a write-down of an intangible asset relating to Origin Australia, reflecting the winding back of the mortgage manager business model ($24 million loss after tax,
tax expense $10 million), Group and Company.
n	Additional adjustment relating to restatement of deferred tax assets following the change in New Zealand company tax rate ($1 million after tax) Company (nil).
nn

The results of 2007 include the following items:nn	Gain on sale of Fleet Partners Pty Limited and Truck Leasing Limited, including previously unrecognised capital losses on the buyback of TrUEPrs being applied against the gain following
Australian Tax Office clearance ($195 million profit after tax, tax expense nil), Company (nil).
	Restatement of deferred tax assets following the announced change in New Zealand company tax rate which takes effect from 1 October 2008 ($24 million loss after tax), Company (nil).

60 ANZ Annual Report 2008

For personal use only

Balance sheets as at 30 September
Consolidated

The Company

2008
$m

20073
$m

2008
$m

20073
$m

25,0309,862
15,17736,941
17,480335,187
15,297
–
–
4,375
809
455
3,741
5,078
1,592

16,9878,040
15,167
22,20414,006
288,879
14,536
–
–
3,430
160
113
3,677
4,081
1,493

18,081
8,573
12,84633,298
15,103
236,757
15,262
26,661
9,144
869
680
337
623
3,352
1,005

10,6186,134
13,35921,37011,383
198,643
14,523
15,481
8,405
582
–
87
511
2,284
739

471,024

392,773382,591

304,119

20,092283,966
31,927
15,297–61
247
10,076
1,217
67,323
14,266

19,116
233,743
24,18014,536–628
135
10,507
1,021
54,075
12,78418,001
203,328
31,455
15,262
17,469
2
243
7,484
908
52,071
12,776

17,240
158,065
25,001
14,523
5,371
587
103
8,387
710
43,157
11,886

Total liabilities

444,472

370,725

358,999

285,030

Net assets

26,552

22,04823,592

19,089AssetsLiquid assets
Due from other financial institutions
Trading securities1
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances
Due from controlled entities
Shares in controlled entities
Shares in associates and joint venture entities
Current tax assets
Deferred tax assets
Goodwill and other intangible assets2
Other assets
Premises and equipment

Note

9
10
11
12
13
14
17
17
18
18
19
20
21

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

22
12
23
23
24
25
26
27

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

28
28
29
29

12,589871(742)
13,772

8,946
871
(889)
13,082

12,589871(75)
10,207

8,946
871
(164)
9,436

Share capital and reserves attributable to shareholders of the Company
Minority interests30

26,49062

22,01038

23,592–

19,089–26,552

22,04823,592

19,089Total equity
Commitments (note 43)
Contingent liabilities, contingent assets and credit related commitments (note 44)

The notes appearing on pages 64 to 175 form an integral part of these financial statements.
1 Includes bills held in portfolio $3,736 million (September 2007: $2,305 million).
2 Excludes notional goodwill in equity accounted entities.
3 Prior period balances are reclassified in certain instances to aid comparability with current disclosures. The main reclassification is a transfer of $1.5 billion from Deposits and otherborrowings to Due to other financial institutions for the Group and for the Company.

Financial Report 61

Statements of recognised income and expense for the year ended 30 September

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity

393

(563)

254

(291)

Available-for-sale assets
Valuation gain/(loss) taken to equity
Cumulative (gain)/loss transferred to the income statement
Transfer on step acquisition of associate

(305)
60
60

109
(14)
–

(272)
63
60

100
(4)
–

Cash flow hedges
Valuation gain/(loss) taken to equity
Transferred to income statement for the year

(39)
(35)

74
(7)

(34)
5

40
–

Actuarial gain/(loss) on defined benefit plans
Adjustment on step acquisition of associate

(79)
1

77
–

(60)
–

75
–

Net (loss)/income recognised directly in equity

56

(324)

16

(80)

Profit for the year

3,327

4,187

3,336

3,551

Total recognised income and expense for the year

3,383

3,863

3,352

3,471

8

7

–

–

3,375

3,856

3,352

3,471

For personal use only

Items recognised directly in equity1

Total recognised income and expense for the year attributable tominority interests
Total recognised income and expense for the year attributable toshareholders of the Company

The notes appearing on pages 64 to 175 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer note 6).

62 ANZ Annual Report 2008

Cash flow statements for the year ended 30 September

Consolidated
Note

For personal use only

Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Net cash paid from settlement of derivatives
Income taxes paid
Australia
Overseas
Goods and services tax paid
(Increase)/decrease in operating assets
Liquid assets – greater than three months
Due from other financial institutions – greater than 3 months
Trading securities
Regulatory deposits
Loans and advances
Net intra-group loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash (used in)/provided by operating activities
Cash flows from investing activities
Net (increase)/decrease
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other assets
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Net increase/(decrease)
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Net cash provided by/(used in) financing activities
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances
Cash and cash equivalents at end of year

37(a)

37(b)

The Company

2008
$m

20071
$m

2008
$m

20071
$m

32,18984
2,696
692(24,186)(3,156)(465)(1,284)(1,628)26,08899
2,327
136(18,444)(2,980)(418)(1,174)(2,154)

23,341304
1,953
70(17,852)(2,256)(324)(1,101)(796)

17,807
1,134
1,616
671
(12,941)(2,105)
(284)
(915)
(963)

(2,006)(464)(10)(1,381)(500)(11)(2,002)(38)
18(1,384)(58)(1)(4,692)
(739)
31
(232)
(46,855)–(1,642)(410)(5,913)(54)(36,943)–(3,620)
(674)
501
(134)
(38,446)
2,222(1,865)(195)(5,846)(31)(27,606)(10,305)

49,796976(1,189)(442)

33,9644,326
23(5,061)

43,503761(2,513)
2,917

34,5853,050(11)(5,647)(30,228)
26,914(13,215)
9,701(28,555)
25,189(10,652)
7,770

(450)
128

(1,450)
444

(291)
113

(549)
67

(559)
98
(1,101)(5,198)

(409)
79
41
(4,809)(396)
10(1,000)(4,930)

(356)
7
(20)
(3,733)

29,200(21,091)

16,443(7,622)

22,545(17,319)

15,149(7,499)3,823(1,975)
(46)
67
9,978
(442)
(5,198)
9,978
4,338
19,07475
23,487

3,013(980)(1,958)132
9,028(5,061)(4,809)9,028(842)
20,344(428)
19,0742,851(1,455)
–
67
6,689
2,917
(4,930)6,689
4,676
12,040440
17,1562,691(500)(1,921)
132
8,052(5,647)(3,733)
8,052(1,328)
13,570(202)
12,040The notes appearing on pages 64 to 175 form an integral part of these financial statements.
1 Comparative information has been restated to conform with current year’s presentation.

Financial Report 63

Notes to the Financial Statements
1: Significant Accounting Policies

For personal use only

The financial report of Australia and New Zealand Banking Group
Limited (the Company or the Parent entity) and its controlled entities(the Group) for the year ended 30 September 2008 was authorisedfor issue in accordance with the resolution of the directors on
7 November, 2008.
The principal accounting policies adopted in the preparation of
the financial report are set out below. These policies have been
consistently applied by all consolidated entities and to all periods
presented in the consolidated financial report.
A) Basis of preparationi) Statement of compliance
The financial report of the Company and Group is a general
purpose financial report which has been prepared in accordancewith the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs), Australian AccountingStandards Board (AASB) Interpretations, other authoritative
pronouncements of the AASB, and the Corporations Act 2001.
International Financial Reporting Standards (IFRS) are Standards andInterpretations adopted by the International Accounting Standards
Board (IASB). IFRS forms the basis of AASs and Interpretations issued
by the AASB. The Group’s application of AASs and Interpretations
ensures that the consolidated financial report of the Group and thefinancial report of the Company comply with IFRS.

ii) Use of estimates and assumptions
The preparation of the financial report requires the use ofmanagement judgement, estimates and assumptions that affectreported amounts and the application of policies. The estimatesand associated assumptions are based on historical experienceand various other factors that are believed to be reasonable.
Actual results may differ from these estimates. Discussion of these
critical accounting treatments, which include complex or subjective
decisions or assessments, are covered in note 2. Such estimates
may require review in future periods.

iii) Basis of measurement
The financial report has been prepared in accordance with thehistorical cost basis except that the following assets and liabilities
are stated at their fair value:
derivative financial instruments, including in the case of fairvalue hedging (refer note 1 E(ii)) the fair value of any applicable
underlying exposure;
assets treated as available-for-sale;financial instruments held for trading;assets and liabilities designated at fair value through profit
and loss; anddefined benefit plan assets and liabilities.

iv) Changes in accounting policy and early adoptions
There has been no material change in accounting policies or
early adoption of AASs in the preparation or presentation of thisfinancial report.
This is the first year that AASB 7 Financial Instruments: Disclosures
has been applied in the Group’s financial statements. This standard
requires disclosures about the significance of financial instruments
to the Group’s financial position and result and the nature andextent of credit, market and liquidity risks arising from financial
instruments, including how they are managed. This standard has no
impact on the recognition or measurement of financial instruments,
and therefore no impact on the Group’s financial position or result.

v) Rounding
The Parent entity is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the financial
report have been rounded to the nearest million dollars, except
where otherwise indicated.

vi) Comparatives
Certain amounts in the comparative information have been
reclassified to conform with current period financial statement
presentations.

vii) Principles of consolidation
Subsidiaries
The financial statements consolidate the financial statements of theCompany and all its subsidiaries where it is determined that there isa capacity to control.
Where subsidiaries have been sold or acquired during the year, theiroperating results have been included to the date of disposal or fromthe date of acquisition.
Control means the power to govern, directly or indirectly, thefinancial and operating policies of an entity so as to obtain benefits
from its activities. All the facts of a particular situation are consideredwhen determining whether control exists. Control is usually present
when an entity has:power over more than one-half of the voting rights of theother entity;
power to govern the financial and operating policies of theother entity;
power to appoint or remove the majority of the members of
the board of directors or equivalent governing body; or
power to cast the majority of votes at meetings of the boardof directors or equivalent governing body of the entity.
In addition, potential voting rights that are presently exercisable
or convertible are taken into account in determining whether
control exists.
In relation to special purpose entities, control is deemed to exist
where:
in substance, the majority of the residual risks and rewards fromtheir activities accrue to the Group; orin substance, the Group controls decision making powers so as toobtain the majority of the risks and rewards from their activities.
Further detail on special purpose entities is provided in note 2(i).

64 ANZ Annual Report 2008

Notes to the Financial Statements
1: Significant Accounting Policies (continued)

For personal use only

Associates and joint ventures
The Group adopts the equity method of accounting for associates
and the Group’s interest in joint venture entities.
The Group’s share of results of associates and joint venture entities
is included in the consolidated income statement. Shares inassociates and joint venture entities are carried in the consolidatedbalance sheet at cost plus the Group’s share of post-acquisition net
assets. Interests in associates and joint ventures are reviewed forany indication of impairment at least at each reporting date. This
impairment review may use a discounted cash flow methodology
and other methodologies to determine the reasonableness of thevaluation, including the multiples of earnings methodology.
In the Company’s financial statements, investments in associates
and joint venture entities are carried at cost.

viii) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The consolidated financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of thetransactions.
Monetary assets and liabilities resulting from foreign currencytransactions are subsequently translated at the spot rate atreporting date.
Exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different to those at which
they were initially recognised or included in a previous financial
report, are recognised in the income statement in the period inwhich they arise.

When a foreign operation is disposed, exchange differences
are recognised in the income statement as part of the gain orloss on sale.
Goodwill arising on the acquisition of a foreign entity is treatedas an asset of the foreign entity and translated at the rate rulingat balance date.
B) Income recognitioni) Interest income
Interest income is recognised as it accrues using the effective
interest rate method.
The effective interest method calculates the amortised cost of afinancial asset or financial liability and allocates the interest income
or interest expense over the expected life of the financial asset or
financial liability so as to achieve a constant yield on the financial
asset or liability.
For assets subject to prepayment, expected life is determinedon the basis of the historical behaviour of the particular asset
portfolio, taking into account contractual obligations andprepayment experience assessed on a regular basis.

ii) Fee and commission income
Fees and commissions received that are integral to the effective
interest rate of a financial asset are recognised using the effective
interest method as summarised in note 1(B)(i). For example, loan
commitment fees, together with related direct costs, are deferred
and recognised as an adjustment to the effective interest rate ona loan once drawn. Commitment fees to originate a loan which isunlikely to be drawn down are recognised as fee income as theservice is provided.
Fees and commissions that relate to the execution of a significant
act (for example, advisory or arrangement services, placement fees
and underwriting fees) are recognised when the significant act has
been completed.

Translation differences on non-monetary items, such as derivatives
measured at fair value through profit or loss, are reported as part of
the fair value gain or loss on these items.

Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.

Translation differences on non-monetary items measured at fairvalue through equity, such as equities classified as available-for-salefinancial assets, are included in the available-for-sale reserve in equity.

iii) Dividend income

Foreign operations
The results and financial position of all Group entities (none ofwhich has the currency of a hyperinflationary economy), that have afunctional currency different from the Group’s presentation currency,
are translated into the Group’s presentation currency as follows:
assets and liabilities of each foreign operation are translated
at the rates of exchange ruling at balance date;revenue and expenses of each foreign operation are translated
at the average exchange rate for the period, unless this average
is not a reasonable approximation of the rate prevailing ontransaction date, in which case revenue and expenses aretranslated at the exchange rate ruling at transaction date; andall resulting exchange differences are recognised in the foreign
currency translation reserve.

Dividends are recognised as revenue when the right to receive
payment is established.

iv) Leasing income
Finance income on finance leases is recognised on a basis thatreflects a constant periodic return on the net investment in thefinance lease.

v) Gain or loss on sale of property, plant and equipment
The gain or loss on the disposal of premises and equipment
is determined as the difference between the carrying amountof the assets at the time of disposal and the proceeds of disposal,
and is recognised as an item of other income in the year in which
the significant risks and rewards of ownership are transferred tothe buyer.

Financial Report 65

Notes to the Financial Statements
1: Significant Accounting Policies (continued)C) Expense recognitioni) Interest expense

For personal use onlyInterest expense on financial liabilities measured at amortised
cost is recognised in the income statement as it accrues using
the effective interest method as described in note 1(B)(i).

ii) Loan origination expenses
Certain loan origination expenses are an integral part of the effective
interest rate of a financial asset measured at amortised cost. Theseloan origination expenses include:
fees and commissions payable to brokers in respect of originating
lending business; andother expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct andincremental costs related to the issue of a financial asset.

Such loan origination expenses are initially recognised as partof the cost of acquiring the financial asset and amortised as partof the expected yield of the financial asset over its expected life
using the effective interest method.

iii) Share-based compensation expense
The Group has various equity settled share-based compensationplans. These are described in note 46 and largely comprise the
Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value
is expensed immediately when shares vest immediately or on astraight-line basis over the relevant vesting period.
Share options
The fair value of share options is measured at grant date, using an
option pricing model. The fair value is expensed on a straight-line
basis over the relevant vesting period. This is recognised as an
employee compensation expense with a corresponding increasein the share options reserve.
The option pricing model takes into account the exercise priceof the option, the risk-free interest rate, the expected volatilityof ANZ’s ordinary share price and other factors. Market vesting
conditions are taken into account in estimating the fair value.
Performance rights
A Performance Right is a right to acquire a share at nil cost to theemployee subject to satisfactorily meeting time and performance
hurdles. Upon exercise, each Performance Right entitles the holder
to one ordinary share in ANZ. The fair value of Performance Rights
is determined at grant date using an option pricing model, taking
into account market conditions. The fair value is expensed over the
relevant vesting period. This is recognised as an employee expensewith a corresponding increase in the share options reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amountrecognised as an expense is adjusted for vesting conditions otherthan market conditions so that, ultimately, the amount recognised
as an expense is based on the number of equity instruments thateventually vest.

66 ANZ Annual Report 2008iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases, and the operating lease payments are recognised
as an expense on a straight-line basis over the lease term.
D) Income taxi) Income tax expense
Income tax on earnings for the year comprises current and deferred
tax and is based on the applicable tax law in each jurisdiction.
It is recognised in the income statement as tax expense, except
when it relates to items credited directly to equity, in which case itis recorded in equity, or where it arises from the initial accounting
for a business combination, in which case it is included in thedetermination of goodwill.

ii) Current tax
Current tax is the expected tax payable on taxable income for theyear, based on tax rates (and tax laws) which are enacted at thereporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as
a liability (or asset) to the extent that it is unpaid (or refundable).

iii) Deferred tax
Deferred tax is accounted for using the comprehensive tax balance
sheet method. It is generated by temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and their tax base.
Deferred tax assets, including those related to the tax effects ofincome tax losses and credits available to be carried forward, arerecognised only to the extent that it is probable that future taxable
profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.
Deferred tax liabilities are recognised for all taxable temporary
differences, other than those relating to taxable temporary
differences arising from goodwill. They are also recognised fortaxable temporary differences arising on investments in controlled
entities, branches, associates and joint ventures, except where
the Group is able to control the reversal of the temporary differences
and it is probable that temporary differences will not reverse in
the foreseeable future. Deferred tax assets associated with theseinterests are recognised only to the extent that it is probable thatthe temporary difference will reverse in the foreseeable future andthere will be sufficient taxable profits against which to utilise thebenefits of the temporary difference.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period(s) when the asset andliability giving rise to them are realised or settled, based on tax
rates (and tax laws) that have been enacted or substantively
enacted by the reporting date. The measurement reflects thetax consequences that would follow from the manner in which
the Group, at the reporting date, recovers or settles the carrying
amount of its assets and liabilities.

iv) Offsetting
Current and deferred tax assets and liabilities are offset only to theextent that they relate to income taxes imposed by the same taxation
authority, there is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant jurisdiction.

Notes to the Financial Statements
1: Significant Accounting Policies (continued)
E) Assets

For personal use only

Financial assetsi) Financial assets and liabilities at fair value through profit
or loss
Trading securities are financial instruments acquired principallyfor the purpose of selling in the short-term or which are a part ofa portfolio which is managed for short-term profit-taking. Trading
securities are initially recognised and subsequently measured in
the balance sheet at their fair value.
Derivatives that are neither financial guarantee contracts nor
effective hedging instruments are carried at fair value throughprofit or loss. In addition, certain financial assets and liabilities
are designated and measured at fair value through profit or loss
where the following applies:
doing so eliminates or significantly reduces a measurement
or recognition inconsistency that would otherwise arise frommeasuring assets and liabilities, or recognising the gains orlosses thereon, on different bases;a group of financial assets or financial liabilities or both ismanaged and its performance evaluated on a fair value basis; orthe financial instrument contains an embedded derivative, unlessthe embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be
separately recorded.

The designation of a financial asset or liability at fair value throughprofit or loss is irrevocable.
Changes in the fair value (gains or losses) of these financial
instruments are recognised in the income statement in the
period in which they occur.
Purchases and sales of trading securities are recognised on
trade date.

ii) Derivative financial instruments
Derivative financial instruments are contracts whose value isderived from one or more underlying price, index or other variables.
They include swaps, forward rate agreements, futures, options andcombinations of these instruments.
Derivative financial instruments are entered into for trading purposes(including customer-related reasons), or for hedging purposes(where the derivative instruments are used to hedge the Group’s
exposures to interest rate risk, currency risk, price risk, credit risk
and other exposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fairvalue with gains or losses from subsequent measurement at fairvalue being recognised in the income statement. Included in thedetermination of the fair value of derivatives is a credit valuation
adjustment to reflect the credit worthiness of the counterparty,
modelled using the counterparty’s credit spreads. The valuation
adjustment is influenced by the mark-to-market of the derivativetrades and by movement in credit spreads.
Where the derivative is designated and is effective as a hedging
instrument, the timing of the recognition of any resultant gainor loss in the income statement is dependent on the hedging
designation. These hedging designations and associatedaccounting are as follows:

Fair value hedge
Where the Group hedges the fair value of a recognised asset
or liability or firm commitment, changes in the fair value of thederivative designated as a fair value hedge are recognised in theincome statement. Changes in the fair value of the hedged item
attributable to the hedged risk are reflected in adjustments to thecarrying value of the hedged item, which are also recognised in
the income statement.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised or no longer qualifies forhedge accounting. The resulting adjustment to the carrying amountof the hedged item arising from the hedged risk is amortised to theincome statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedge
The Group designates derivatives as cash flow hedges where
the instrument hedges the variability in cash flows of a recognised
asset or liability, a foreign exchange component of a firm
commitment or a highly probable forecast transaction. The effective
portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the hedging reserve,
which forms part of shareholders’ equity. Any ineffective portion isrecognised immediately in the income statement. Amounts deferredin equity are recognised in the income statement in the period during
which the hedged forecast transactions take place.
When the hedge expires, is sold, is terminated, is exercised,or no longer qualifies for hedge accounting, the cumulative
amount deferred in equity remains in the hedging reserve, and is
subsequently transferred to the income statement when the hedged
item is recognised in the income statement.
When a forecast hedged transaction is no longer expected to occur,
the amount deferred in equity is recognised immediately in theincome statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted forsimilarly to cash flow hedges. The gain or loss from remeasuring thefair value of the hedging instrument relating to the effective portionof the hedge is deferred in the foreign currency translation reservein equity and the ineffective portion is recognised immediately in
the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives
that are not designated in a hedging relationship but are enteredinto to manage the interest rate and foreign exchange risk offunding instruments are recognised in the income statement.
Under certain circumstances, the component of the fair valuechange in the derivative which relates to current period realised
and accrued interest is included in net interest income. The
remainder of the fair value movement is included in other income.
Set-off arrangements
Fair value gains/losses arising from trading derivatives are notoffset against fair value gains/losses on the balance sheet unlessa legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that createa legal right of set-off for which only the net revaluation amountis recognised in the income statement, net unrealised gains
on derivatives are recognised as part of other assets and net
unrealised losses are recognised as part of other liabilities.
Financial Report 67

Notes to the Financial Statements
1: Significant Accounting Policies (continued)iii) Available-for-sale financial assets

For personal use only

Available-for-sale assets comprise non-derivative financial assets
which the Group designates as available-for-sale but which are notdeemed to be held principally for trading purposes, and include
equity investments, certain loans and advances, and quoted debt
securities. They are initially recognised at fair value plus transaction
costs. Subsequent gains or losses arising from changes in fair value
are included as a separate component of equity in the ‘available-forsale revaluation reserve’. When the asset is sold, the cumulative gainor loss relating to the asset is transferred to the income statement.
Where there is objective evidence of impairment on an availablefor-sale asset, the cumulative loss related to that asset is removed
from equity and recognised in the income statement, as an
impairment expense for debt instruments or as non-interest income
for equity instruments. If, in a subsequent period, the amount of
an impairment loss relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively to an event
occurring after the impairment event, the loss is reversed throughthe income statement through the impairment expense line.
Purchases and sales of available-for-sale financial assets arerecognised on trade date as with all regular way assets, being thedate on which the Group commits to purchase or sell the asset.

iv) Net loans and advances
Net loans and advances are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money to a debtor
with no intention of trading the loans and advances. The loans andadvances are initially recognised at fair value plus transaction costs
that are directly attributable to the issue of the loan or advance.
They are subsequently measured at amortised cost using theeffective interest rate method (refer note 1(B)(i)), unless specificallydesignated on initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided tocustomers such as bank overdrafts, credit cards, term loans,finance lease receivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting datefor impairment.
Credit impairment provisions are raised for exposures that are
known to be impaired. Exposures are impaired and impairment
losses are recorded if, and only if, there is objective evidence ofimpairment as a result of one or more loss events that occurred
after the initial recognition of the loan and prior to the reporting
date, and that loss event, or events, has had an impact on theestimated future cash flows of the individual loan or the collective
portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individually significant(or on a portfolio basis for small value loans) and then on a collective
basis for those exposures not individually known to be impaired.
Exposures that are assessed collectively are placed in poolsof similar assets with similar risk characteristics. The required
provision is estimated on the basis of historical loss experience
for assets with credit risk characteristics similar to those in thecollective pool. The historical loss experience is adjusted basedon current observable data such as changed economic conditions.
The provision also takes account of the impact of inherent risk oflarge concentrated losses within the portfoilo.

68 ANZ Annual Report 2008

The estimated impairment losses are measured as the difference
between the assets’ carrying amount and the estimated future
cash flows discounted to their present value. As this discountunwinds during the period between recognition of impairment
and recovery of the cash flow, it is recognised in interest income.
The process of estimating the amount and timing of cash flows
involves considerable management judgment. These judgments
are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in theincome statement.
When a loan is uncollectible, either partially or in full, it is
written-off against the related provision for loan impairment.
Unsecured facilities are normally written-off when they become
180 days past due or earlier in the event of the customer’sbankruptcy or similar legal release from the obligation. Howevera certain level of recoveries is expected after the write-off, whichis reflected in the amount of the provision for credit losses. In thecase of secured facilities, remaining balances are written-off after
proceeds from the realisation of collateral have been received if
there is a shortfall.
Where impairment losses recognised in previous periods havesubsequently decreased or no longer exist, such impairment
losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such ascommitments that are considered to be onerous.

v) Lease receivables
Contracts to lease assets and hire purchase agreements areclassified as finance leases if they transfer substantially all therisks and rewards of ownership of the asset to the customer oran unrelated third party. All other lease contracts are classified
as operating leases.

vi) Repurchase agreements
Securities sold under repurchase agreements are retained in thefinancial statements where substantially all the risks and rewardsof ownership remain with the Group, and a counterparty liability
is disclosed under the classifications of due to other financial
institutions or payables and other liabilities. The difference between
the sale price and the repurchase price is accrued over the life of
the repurchase agreement and charged to interest expense in theincome statement.
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded
as receivables in liquid assets, net loans and advances, or due fromother financial institutions, depending on the term of the agreement
and the counterparty. The security is not included in the balance
sheet. Interest income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the obligation
to repurchase is recorded as a financial liability at fair value withfair value movements included in the income statement.

Notes to the Financial Statements
1: Significant Accounting Policies (continued)vii) Derecognition

For personal use only

The Group enters into transactions where it transfers financial assets
recognised on its balance sheet yet retains either all the risks andrewards of the transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, the transferredassets are not derecognised from the balance sheet.
In transactions where substantially all the risks and rewards ofownership of a financial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.
In transfers where control over the asset is retained, the Group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed
to changes in the value of the transferred asset. The rights andobligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.

Non-financial assetsviii) Goodwill
Goodwill represents the excess of the purchase consideration
over the fair value of the identifiable net assets of a controlled
entity at the date of gaining control. Goodwill is recognised as
an asset and not amortised, but assessed for impairment atleast annually or more frequently if there is an indication thatthe goodwill may be impaired. This involves using the discounted
cash flow (DCF) or the capitalisation of earnings methodology(CEM) to determine the expected future benefits of the cashgenerating units. Where the assessment results in the goodwill
balance exceeding the value of expected future benefits, thedifference is charged to the income statement. Any impairmentof goodwill may not be subsequently reversed.

Buildings
Building integrals
Furniture & equipment
Computer & office equipment

1%
10%
10%
12.5%–33%

Leasehold improvements are amortised on a straight-line basis overthe shorter of their useful lives or remaining terms of the lease.
At each reporting date, the carrying amounts of premises andequipment are reviewed for impairment. If any such indication
exists, the recoverable amount of the assets are estimated andcompared against the existing carrying value. Where the existing
carrying value exceeds the recoverable amount, the difference ischarged to the income statement. If it is not possible to estimate
the recoverable amount of an individual asset, the Group estimates
the recoverable amount of the cash generating unit to which theasset belongs.
A previously recognised impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable
amount.
F) Liabilities

Financial liabilitiesi) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit,
interest bearing deposits, debentures and other related interest
bearing financial instruments. They are measured at amortised
cost. The interest expense is recognised using the effective interest
method as explained in note 1(B)(i).

ix) Other intangible assetsii) Acceptances

Other intangible assets include costs incurred in acquiring andbuilding software and computer systems (“software”).

Commercial bills accepted but not held in portfolio are accounted
for as a liability with a corresponding contra asset. The liability isdisclosed as liability for acceptances, and the asset is disclosed
as Customer’s liability for acceptances.

Software is amortised using the straight-line method over its
expected useful life to the Group. The period of amortisation
is between 3 and 5 years, except for certain core infrastructure
projects where the useful life has been determined to be 7 years.
At each reporting date, software assets are reviewed for impairment.
If any such indication exists, the recoverable amount of the assets
are estimated and compared against the existing carrying value.
Where the existing carrying value exceeds the recoverable amount,the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or inmaintaining systems after implementation, are not capitalised.

x) Premises and equipment
Premises and equipment are carried at cost less accumulated
depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets(principally the new office building in Docklands area, Melbourne
Australia) are capitalised during the period of time that is required tocomplete and prepare the asset for its intended use. The calculationof borrowing costs is based upon the Group’s internal cost of capital.
Assets other than freehold land are depreciated at rates based
upon their expected useful lives to the Group, using the straight-line
method. The depreciation rates used for each class of asset are:

The Group’s own acceptances discounted are held as part of the
trading securities portfolio.

iii) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way
as deposits and other borrowings, except for those bonds and notes
which are stated designated at fair value through profit or loss
on initial recognition, with fair value movements recorded in theincome statement.

iv) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for a loss it
incurs because a specified debtor fails to make payments when due.
Financial guarantees are issued in the ordinary course of business,consisting of letters of credit, guarantees and acceptances. Financial
guarantees are initially recognised in the financial statements atfair value on the date the guarantee was given; typically this is thepremium received. Subsequent to initial recognition, the Group’s
liabilities under such guarantees are measured at the higher of
their amortised amount and the best estimate of the expenditure
required to settle any financial obligation arising at the balance
sheet date. These estimates are determined based on experienceof similar transactions and the history of past losses.

Financial Report 69

Notes to the Financial Statements
1: Significant Accounting Policies (continued)vii) Provisions

Financial liabilities are derecognised when the obligation specified
in the contract is discharged, cancelled or expires.

The Group recognises provisions when there is a present obligation,
the future sacrifice of economic benefits is probable, and theamount of the provision can be measured reliably.

For personal use onlyv) DerecognitionNon-financial liabilitiesvi) Employee benefits
Leave benefits
The amounts expected to be paid in respect of employees’
entitlements to annual leave are accrued at expected salaryrates including on-costs. Expected future payments for longservice leave are discounted using market yields at the reporting
date on national government bonds with terms to maturity thatmatch, as closely as possible, the estimated future cash outflows.
Liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using
an actuarial valuation.
Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes
and also contributes, according to local law, in the various countries
in which it operates, to government and other plans that have thecharacteristics of defined contribution schemes.
The Group’s contributions to these schemes are recognised as an
expense in the income statement when incurred.
Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes.
The liability and expense related to providing benefits to employees
under each defined benefit scheme are calculated by independentactuaries.
A defined benefit liability is recognised to the extent that the present
value of the defined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than the fair valueof each scheme’s assets. Where this calculation results in a benefit
to the Group, a defined benefit asset is recognised, which is cappedat the recoverable amount. In each subsequent reporting period,
ongoing movements in the defined benefit liability or asset carrying
value is treated as follows:
the net movement relating to the current period’s service cost,interest cost, expected return on scheme assets, past service
costs and other costs (such as the effects of any curtailments
and settlements) is recognised as an employee expense in theincome statement;
movements relating to actuarial gains and losses are recognised
directly in retained earnings; andcontributions incurred are recognised directly against the net
defined benefit position.

70 ANZ Annual Report 2008

The amount recognised is the best estimate of the consideration
required to settle the present obligation at reporting date, taking
into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amountis the present value of those cash flows.
G) Equityi) Ordinary shares
Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.

ii) Treasury shares
Shares in the Company which are purchased on-market by the
ANZ Employee Share Acquisition Plan or issued by the Company
to the ANZ Employee Share Acquisition Plan are classified astreasury shares (to the extent that they relate to unvested employee
share-based awards) and deducted from share capital.

iii) Minority interests
Minority interests represent the share in the net assets ofsubsidiaries attributable to equity interests not owned directly
or indirectly by the Company.

iv) Reserves
Foreign currency translation reserve
As indicated in note 1(A)(viii), exchange differences arising ontranslation of the assets and liabilities of all Group entities arereflected in the foreign currency translation reserve. Any offsetting
gains or losses on hedging these balances, together with any tax
effect, are also reflected in this reserve.
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-salefinancial assets, net of tax. These changes are transferredto the income statement (in non-interest income) when the asset
is derecognised. Where the asset is impaired, the changes aretransferred to impairment expense line in the income statementfor debt instruments and in the case of equity instruments to
non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated withthe effective portion of designated cash flow hedging instruments.
Share-based payment reserves
Share-based payment reserves include the share options reserveand other equity reserves which arise on the recognition of sharebased compensation expense (see note 1(C)(iii)).

Notes to the Financial Statements
1: Significant Accounting Policies (continued)I) Otheri) Offsetting of income and expensesi) Contingent liabilities

Income and expenses are not offset unless required or permitted
by an accounting standard. At the Group level, this generally arisesin the following circumstances:

A contingent liability is a liability of sufficient uncertainty that it
does not qualify for recognition as a provision.

For personal use onlyH) Presentation

where transaction costs form an integral part of the effective
interest rate of a financial instrument which is measured atamortised cost, these are offset against the interest income
generated by the financial instrument;
where gains and losses relating to fair value hedges are assessed
as being effective; orwhere gains and losses arise from a group of similar transactions,such as foreign exchange gains and losses.

ii) Offsetting assets and liabilities
Assets and liabilities are offset and the net amount reported in
the balance sheet only where there is:a current enforceable legal right to offset the asset and liability;
andan intention to settle on a net basis, or to realise the asset andsettle the liability simultaneously.

Further disclosure is made in note 44 where the above requirements
are not met, but there is a possible obligation that is higher thanremote. Specific details of the nature of the contingent liability areprovided and, where practicable, an estimate of its financial effect.
Alternatively, where no disclosure is made of its financial effectbecause it is not practicable to do so, a statement to that effect.

ii) Earnings per share
Basic earnings per share is calculated by dividing net profit after
tax applicable to equity holders of the Company, excluding any
costs of servicing other equity instruments, by the weighted average
number of ordinary shares outstanding during the financial year.
Diluted earnings per share adjusts the figures used in the determinationof basic earnings per share to take into account the after income tax
effective interest and other financing costs associated with dilutive
potential ordinary shares and the weighted average number of
additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.

iii) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with otherfinancial institutions, other short-term, highly liquid investmentswith original terms to maturity of three months or less that are readily
convertible to cash and which are subject to an insignificant risk ofchanges in value.

iv) Segment reporting
A segment is a distinguishable component of the Group that is
engaged either in providing products or services (business segment),
or in providing products or services within a particular economic
environment (geographical segment), that is subject to risks
and returns that are different from those of other business orgeographical segments.

v) Goods and services tax
Income, expenses and assets are recognised net of the amountof goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the Australian Tax Office (ATO).
In these circumstances the GST is recognised as part of the costof acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from or payable to the
ATO is included as an other asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a grossbasis. The GST components of cash flows arising from investing
and financing activities which are recoverable from or payable
to the ATO are classified as operating cash flows.

Financial Report 71

Notes to the Financial Statements
1: Significant Accounting Policies (continued)iii) Accounting Standards and Interpretations not early adopted

For personal use only

The following standards and amendments were available for early adoption but have not been applied by the Group in these financial
statements. The Group does not intend to apply any of the above pronouncements until their effective date.
AASB amendment/
standard

Affected Standard(s)Possible impact on Group’s financial report in period of initial adoption

AASB 3AASB 3 Business Combinations (revised)This standard makes changes to certain aspects ofaccounting for business combinations including:Application date
for the Group1

1 October 2009

Transaction costs associated with a businesscombination are immediately expensed, unless thecost relates to issuing debt or equity securities; andContingent consideration must be recognised at its
fair value at acquisition date and classified as a liability
or equity. If the contingent consideration is classified
as a liability, subsequent changes in that liability arerecognised in profit or loss. If classified as equity, it
is not remeasured in subsequent periods.
The potential impact of this revised Standard on the
Company or the Group has not yet been determined.

AASB 8AASB 8 Operating Segments

This standard requires the ‘management approach’ todisclosing information about reportable segments. Under
this approach, financial information is reported on the same
basis as is used internally by the chief decision maker forevaluating operating segment performance and on deciding
how to allocate resources to operating segments.
The application of this standard is not expected to havea material impact of the financial results of the Company
or the Group as this standard is only concerned withdisclosure.

1 October 2009AASB 101AASB 101 Presentation of Financial Statements(revised)

The main change made by this standard is the specificationof a new structure for financial statements under which:

1 October 200972 ANZ Annual Report 2008T he “balance sheet” will revert to its former title“statement of financial position” and the “cash flow
statement” will revert to its former title “statement ofcash flows”;
A “statement of comprehensive income” will be required
showing revenues and expenses recognised in profit orloss and directly against equity. Alternatively, an income
statement may be presented showing revenues andexpenses recognised in profit or loss and, separately,a statement of comprehensive income showing net profit
or loss and revenues and expenses recognised directlyin equity; andA “statement of changes in equity” showing total
comprehensive income, transactions with owners intheir capacity as owners and the effect of retrospective
applications or restatements.
The application of this standard is not expected to havea material impact of the financial results or position of theCompany or the Group as this standard is only concernedwith disclosure.

Notes to the Financial Statements
1: Significant Accounting Policies (continued)

For personal use onlyiii) Accounting Standards and Interpretations not early adopted (continued)

AASB amendment/
standard

Application date
for the Group1

Affected Standard(s)Possible impact on Group’s financial report in period of initial adoption

AASB 127AASB 127 Consolidated and Separate Financial
Statements (revised)

The standard makes changes to certain aspects ofaccounting for non-controlling interests (currently
referred to as a ‘minority interests’). For example, total
comprehensive income must be attributed to the ownersof the parent and to the non-controlling interests even if thisresults in the controlling interests having a deficit balance.
Requirements have been added to clarify that changes ina parent’s ownership interest in a subsidiary that do not
result in the loss of control of a subsidiary are recognised
directly in equity. When loss of control of a subsidiaryoccurs, any gain or loss arising from this event is recognised
in profit or loss and the investment retained in the former
subsidiary is measured at its fair value at the date control
is lost.
The amendments regarding minority interests are notexpected to have a material impact on the Group’s financial
results or position as minority interests are not material to
the Group.
The amendments regarding accounting for changes in aparent’s ownership interest in a subsidiary are not expected
to have a material impact on the Company as these typesof changes occur relatively infrequently for the Company
and normally involve amounts which are not material to
the Company.

1 October 2009AASB 2007-8

Makes amendments to a number of Australian
Accounting Standards and Interpretations as aresult of the revision of AASB 101 Presentationof Financial Statements (applicable to annual
reporting periods beginning on or after 1 January
2009)This standard makes technical amendments to a numberof Australian Accounting Standards arising from revised
AASB 101. No material impact on the Company or the Groupis expected.

1 October 2009AASB 2008-1

AASB 2 Share-based Payment

This standard clarifies that vesting conditions only include
service and performance conditions. The application of thisstandard is not expected to have an impact of the financial
results of the Company or the Group as the treatment ofvesting conditions under the Group’s existing share-basedplans is clear.

1 October 2009AASB 2008-2

AASB 7 Financial Instruments: Disclosures
AASB 101 Presentation of Financial Statements
AASB 132 Financial Instruments: Presentation
AASB 139 Financial Instruments: Recognition
and Measurement
Interpretation 2 Members’ Shares in
Co-operative Entities and Similar Instruments

This standard defines puttable instruments and requires
puttable instruments with certain characteristics to beclassified as equity.
The application of this standard is not expected to havean impact of the financial position of the Company or theGroup as the Group or Company has not issued, nor expects
to issue, puttable instruments with characteristics coveredby the standard.

1 October 2009AASB 2008-3

Makes amendments to a number of Australian
Accounting Standards and Interpretations as
a result of the revision of AASB 3 Business
Combinations and of AASB 127 Consolidated
and Separate Financial statements (bothstandards applicable to annual reporting
periods beginning on or after 1 July 2009)This standard makes technical amendments to anumber of Australian Accounting Standards arisingfrom revised AASB 3 and AASB 127. No material impact
on ANZ is expected.

1 October 2009

Financial Report 73

Notes to the Financial Statements
1: Significant Accounting Policies (continued)

For personal use onlyiii) Accounting Standards and Interpretations not early adopted (continued)

AASB amendment/
standard

Application date
for the Group1

Affected Standard(s)Possible impact on Group’s financial report in period of initial adoption

AASB 2008-5

AASB 5 	Non-Current Assets Held for Saleand Discontinued Operations
AASB 7
Financial Instruments: Disclosures
AASB 101 	Presentation of Financial
Statements
AASB 102 Inventories
AASB 107 Cash Flow Statements
AASB 108 	Accounting Policies, Changes in
Accounting Estimates and Errors
AASB 110 	Events after the Balance
Sheet DateAASB 116 Property, Plant and Equipment
AASB 118 Revenue
AASB 119 Employee Benefits
AASB 120 	Accounting for Government Grants
and Disclosure of Government
Assistance
AASB 123 Borrowing Costs
AASB 127 	Consolidated and Separate
Financial Statements
AASB 128 Investments in Associates
AASB 129 	Financial Reporting inHyperinflationary Economies
AASB 131 Interests in Joint VenturesAASB 132 	Financial Instruments: Presentation
AASB 134 Interim Financial Reporting
AASB 136 Impairment of Assets
AASB 138 Intangible Assets
AASB 139 	Financial Instruments: Recognition
and Measurement
AASB 140 Investment Property
AASB 141 Agriculture
AASB 1023 General Insurance Contracts
AASB 1038 Life Insurance Contracts

This standard makes amendments to 25 standards that
result in terminology or editorial changes to standards
as well as presentation, recognition and measurementchanges to certain standards. Most of the amendments
are of a technical or clarifying nature and are not expected
to have a material impact on the Company or the Group.

1 October 2009AASB 2008-6

AASB 1 	First-time Adoption of Australian
Equivalents to International
Financial Reporting Standards
AASB 5 	Non-current Assets Held for Saleand Discontinued Operations

This standard amends AASB 1 to require a first-time adopter
to apply AASB 127 Consolidated and Separate Financial
Statements (as amended in July 2008) prospectively fromthe date of transition to Australian equivalents to IFRSs.
An amendment has also been made to AASB 5 to require
an entity that is committed to a sale plan involving lossof control of a subsidiary to classify all the assets andliabilities of that subsidiary as held for sale when specified
criteria are met, regardless of whether the entity will retain
a non-controlling interest in its former subsidiary after
the sale.
No material impact on the Company or the Group is
expected as a result of these amendments.

1 October 200974 ANZ Annual Report 2008

Notes to the Financial Statements
1: Significant Accounting Policies (continued)

For personal use onlyiii) Accounting Standards and Interpretations not early adopted (continued)

AASB amendment/
standard

Application date
for the Group1

Affected Standard(s)Possible impact on Group’s financial report in period of initial adoption

AASB 2008-7

AASB 1 	First-time Adoption of Australian
Equivalents to International
Financial Reporting Standards
AASB 118 Revenue
AASB 121 	The Effects of Foreign
Exchange Rates
AASB 127 	Consolidated and Separate
Financial Statements
AASB 136 Impairment of Assets

This standard amends AASB 1 to allow first-time adopters,in their separate financial statements, to use a deemed
cost option for determining the cost of an investment ina subsidiary, jointly controlled entity or associate.
AASB 118 has been amended to remove the requirement
to deduct dividends declared out of pre-acquisition profits
from the cost of an investment in a subsidiary, jointly
controlled entity or associate.
AASB 127 has been amended to require, in certain
circumstances, a new parent entity established in a group
reorganisation to measure the cost of its investment at thecarrying amount of the share of equity items shown in theseparate financial statements of the original parent at thedate of the reorganisation.
AASB 136 has been amended to include, as an impairment
indicator, recognising a dividend from a subsidiary, jointly
controlled entity or associate, together with other evidence.
Consequential amendments have also been made to
AASB 121.
The amendments are not expected to have a material
impact on the Company or the Group.
The Group monitors developments on the enablement of
the formation of a non-operating holding company (NOHC).

1 October 2009AASB 2008-8

AASB 139 	Financial Instruments: Recognition
and Measurement

This standard clarifies the effect of using options as hedging
instruments and the circumstances in which inflation risks
can be hedged.
The above amendments are not expected to have a material
impact as ANZ does not have hedges involving these types
of items.

1 October 2009AASB 1039

AASB 1039 	Concise Financial Reports

AASB 1039 has been revised to achieve consistency withthe terminology and descriptions of financial statements
used in AASB 101 (effective for the Group on 1 October2009) and to achieve consistency with the disclosure
requirements for segments in AASB 8 (effective for theGroup on 1 October 2009).
The above amendments are not expected to have a material
impact on ANZ as the Group no longer issues a concise
financial report.

1 October 20091 Unless otherwise indicated, the initial application date for the Group is for annual reporting periods beginning on or after the date specified.

Financial Report 75

Notes to the Financial Statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies

For personal use only

The Group prepares its consolidated financial statements inaccordance with policies which are based on Australian AccountingStandards (AAS), other authoritative accounting pronouncementsof the Australian Accounting Standards Board (AASB), AASBInterpretations and the Corporations Act 2001. This involves
the Group making estimates and assumptions that affect thereported amounts within the financial statements. Estimates andjudgements are continually evaluated and are based on historicalfactors, including expectations of future events that are believed
to be reasonable under the circumstances. All material changes
to accounting policies and estimates and the application of thesepolicies and judgements are approved by the Audit Committeeof the Board.
A brief explanation of critical estimates and judgements, and theirimpact on the Group, follows:

Critical Accounting Estimates and Assumptions
Provisions for credit impairment
The accounting policy, as explained in note 1(E)(iv), relating
to measuring the impairment of loans and advances, requires
the Group to assess impairment at least at each reporting date.
The credit provisions raised (individual and collective) represent
management’s best estimate of the losses incurred in the loan
portfolio at balance date based on their experienced judgement.
The collective provision is estimated on the basis of historical loss
experience for assets with credit characteristics similar to those in
the collective pool. The historical loss experience is adjusted basedon current observable data and events and an assessment of the
impact of model risk. The provision also takes into account the
impact of large concentrated losses within the portfolio.

The use of such judgements and reasonable estimates is consideredby management to be an essential part of the process and does not
impact on reliability.
Individual provisioning is applied when the full collectibility of oneof the Group’s loans is identified as being doubtful.
Individual and collective provisioning is calculated using discounted
expected future cash flows. The methodology and assumptions used
for estimating both the amount and timing of future cash flows arerevised regularly to reduce any differences between loss estimatesand actual loss experience.

Critical judgements in applying the entity’s accounting policiesi) Special purpose and off-balance sheet entities
The Group may invest in or establish special purpose entities (SPEs)to enable it to undertake specific types of transactions. The maintypes of these SPEs are securitisation vehicles, structured financeentities, and entities used to sell credit protection.
Where the Group has established SPEs which are controlled by
the Group to facilitate transactions undertaken for Group purposes,
these are consolidated in the Group’s financial statements.
The Group does not consolidate SPEs that it does not control inaccordance with the Group’s policy outlined in note 1(A)(vii). As
it can sometimes be difficult to determine whether the Group has
control of an SPE, it makes judgements about its exposure to therisks and rewards, as well as about its ability to make operational
decisions for the SPE in question.

The table below summarises the main types of SPEs with which the Group is involved, the reason for their establishment, and the control factors
associated with ANZ’s interest in them. Although there may be some indicators of control, ANZ does not bear the majority of residual risks andrewards of the SPEs which are not consolidated.
Type of SPE

Reason for establishment

Control factors

Securitisation vehicles

Securitisation is a financing technique whereby assets
are transferred to an SPE which funds the purchase byissuing securities. This enables ANZ (in the case wheretransferred assets originate within ANZ) or customers
to increase diversity of funding sources.

ANZ may manage these securitisation vehicles, service
assets in the vehicle or provide liquidity or other support.
ANZ retains the risks associated with the provision ofthese services. For any SPE which is not consolidated,credit and market risks associated with the underlying
assets are not retained or assumed by ANZ except to thelimited extent that ANZ provides arm’s length services
and facilities.

Structured finance entities

These entities are set up to assist the Group’s Corporate
Finance function with the structuring of client financing.
The resulting lending arrangements are at arms lengthand ANZ typically has limited ongoing involvement withthe entity.

ANZ may manage these vehicles, hold minor amountsof capital, provide financing or derivatives.

Credit protection

There is one special purpose entity in this category which ANZ manages this vehicle and holds a small proportionwas created to allow ANZ to purchase credit protection.
of the most senior notes.
The entity is not consolidated but has issued credit linked
notes to the external market. This SPE is a collateralised
debt obligation.

Refer to additional information in relation to special purpose and off-balance sheet entities in section 4 of the Financial Information (unaudited),
page 185.

76 ANZ Annual Report 2008

Notes to the Financial Statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)

For personal use onlyii) Valuation of investment in ING Australia Limited (INGA)
The Group adopts the equity accounting method for its 49% interest
in INGA. As at 30 September 2008, the Group’s carrying value was$1,589 million (September 2007: $1,519 million).
An independent valuation of the investment was performed during
the period, based on a stand alone market based assessment of
economic value excluding the Group’s specific synergies.
Management further reviewed the recoverable amount of theinvestment as at 30 September 2008, taking into account theannual independent valuation and the potential for reduction inbusiness performance as a result of recent declines in global equity
and property markets. This review concluded that the estimatedrecoverable amount of the investment exceeded its carrying amount,thus no impairment write-down was considered necessary.
Changes in the assumptions used in this review could materially
impact the assessment of the estimated recoverable amount.
(iii) Valuation of investment in ING (NZ) Holdings Limited (ING NZ)
The Group adopts the equity accounting method of accounting for
its 49% interest in ING NZ. As at 30 September 2008, the Group’s
carrying value was $178 million (September 2007: $162 million).
The carrying value of this investment is subject to an impairment
test to ensure that the carrying value does not exceed its recoverable
amount at the balance sheet date. Any excess of carrying value
over recoverable amount is taken to the income statement as an
impairment write-down.
The Group obtained an independent valuation of ING NZ as at
30 September 2008. The valuation was based on a value-in-use
methodology using a discounted cash flow approach. Changes
in the assumptions upon which the valuation is based, together
with changes in future cash flows, could materially impact thevaluation obtained.
Based on this independent valuation, the carrying value of theGroup’s investment is considered recoverable and no impairment
write-down is required.
iv) Significant Associates
The carrying values of all investments in associates (as disclosed
in note 39) are subject to an annual recoverable amount test. This
assessment involves ensuring that the investment’s fair value lesscosts to sell or its value in use is greater than its carrying amount.
Judgement is applied when determining the assumptions supportingthese calculations.
Furthermore, at each reporting period, all investments are assessedagainst potential impairment indicators.
As at 30 September 2008, the Group reviewed all investments
in associates against the following impairment indicators:	actual financial performance against budgeted financial performance;	any material unfavourable operational factors and regulatory factors;	any material unfavourable economic outlook and market
competitive factors;	carrying value against market value (supported by third-party
broker valuation); and	carrying value against market capitalisation (for listed
investments).

Where appropriate, additional potential impairment indicators arereviewed which are more specific to the respective investment.

Whilst the review of impairment indicators listed above revealed
indicators of potential impairment primarily based on unfavourable
economic and market conditions, no impairment write-downs wereconsidered necessary for such investments on the basis that therecoverable amount exceeded the carrying amount.
v) Available-for-sale financial assets
The accounting policy for impairment of available-for-sale financial
assets, as explained in note 1(E)(iii) requires the Group to assess
whether there is objective evidence of impairment. This requires
judgement when considering whether such evidence exists and if so,in reliably determining the impact of such events on the estimatedcash flows of the asset.
vi) Financial Instruments at Fair Value
A significant portion of financial instruments are carried on thebalance sheet at fair value. For some of these financial instruments,
external references, such as a quoted price in an active market, are
not available. In such instances, the reported amounts are based on
measurements established using relevant valuation techniques. The
extent of the usage of valuation techniques for financial instruments
carried at fair value is disclosed in note 34(ii). Sensitivities of values to
inputs, including management estimates, are disclosed in note 34(iii).
vii) Goodwill
The carrying value of goodwill is reviewed at each balance dateand is written down, to the extent that it is no longer supported
by probable future benefits.
Goodwill is allocated to cash-generating units (CGU) for the purposeof impairment testing, which is undertaken at the lowest level at which
goodwill is monitored for internal management reporting purposes.
Impairment testing of purchased goodwill is performed annually, or
more frequently when there is an indication that the goodwill may be
impaired, by comparing the recoverable amount of the CGU with thecurrent carrying amount of its net assets, including goodwill. Where
the current carrying value is greater than recoverable amount, a charge
for impairment of goodwill will be recorded in the income statement.
As at 30 September 2008, the balance of goodwill recorded
as an asset in ANZ National Bank Limited was $2,713 million(30 September 2007: $2,781 million). This represents themost significant component of the Group’s goodwill balance.
In determining the recoverable amount of the CGU for testing of the
goodwill in ANZ National Bank Limited, an independent valuation
was obtained based on a capitalisation of earnings approach anda discounted cash flow approach. Under the capitalisation of
earnings methodology, valuation multiples (such as the price toearnings (PE) ratio) observed from previous transactions in thebanking sector and current price/cash earnings multiples fromsimilar businesses are used to determine an appropriate price/earnings multiple for the CGU.
In determining an appropriate price multiple for the valuation,
judgement is applied when assessing comparable companies
and transactions, particularly with respect to the mix of business,
geographic location, growth prospects, riskiness of future earnings
and size of the overall business.
The results of the independent valuation carried out as at
30 September 2008 showed a fair value (less costs to sell) in
excess of the then current carrying value for the CGU and hence
the carrying value of the goodwill was not considered impaired.

Financial Report 77

Notes to the Financial Statements
3: IncomeConsolidated

The Company

2007
$m

2008
$m

2007
$m

Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances
Acceptances
Other

535
1,125
1,008
27,417
1,370
1,149

488
955
629
22,049
1,072
1,017

435
940
863
18,269
1,370
709

373
749
498
14,192
1,072
586

Controlled entities

32,604–

26,210–22,586
1,048

17,470339

Total interest income

32,604

26,21023,63417,809Interest income is analysed by types of financial assets as follows:
Financial assets not at fair value through profit or loss
Trading securities
Financial assets designated at fair value through profit or loss

31,446
1,125
33

25,255955–

22,668940
26

17,060749–

32,604

26,21023,63417,809For personal use only

2008
$m

Other operating income
Lending fees1
Non-lending fees and commissions arising from financial assets
and liabilities not at fair value through profit or loss
Fee income on trust and other fiduciary activities
Other fees and commissions

595

491

455

374

166
21
2,130

150
20
1,956

153
–
1,472

139
–
1,340

Controlled entities

2,912
–

2,617
–

2,080
248

1,853
178

Total fee and commission income
Fee and commission expense2

2,912
(256)

2,617
(237)

2,328
(186)

2,031
(168)

Net fee and commission income

2,656

2,380

2,142

1,863

Other income
Net foreign exchange earnings
Net (losses)/gains from trading securities3
Net gains/(losses) from trading derivatives
Credit risk on derivatives
Movements on financial instruments measured at fair value through profit or loss4
Gain on Visa shares5
Gain on sale of Esanda Fleetpartners
Profit on sale of premises6
Stadium Australia income
Dividends received from controlled entities
Brokerage income
Other

708
–
344
(721)
348
281
–
57
19
–
78
178

518
(47)
405
(45)
100
–
195
38
38
–
55
142

340
(26)
164
(718)
342
281
–
4
–
1,805
–
103

531
(21)
126
(45)
80
–
–
–
–
1,134
–
67

Total other income

1,292

1,399

2,295

1,872

Total other operating income

3,948

3,779

4,437

3,735

Share of joint venture profit from ING Australia and ING (NZ) (refer note 40)
Share of associates’ profit (refer note 39)7

143
218

172
87

–
–

–
–

Total share of joint venture and associates’ profit

361

259

36,91330,248

Total income 8

1
2
3
4

5
6
7
8

–
28,071

21,544

Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1B(ii)).
Comprises interchange fees paid.
Does not include interest income.
Includes any fair value movements (excluding realised and accrued interest) on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments,
and not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value.
The net gain on financial assets and liabilities designated at fair value was $251 million (2007: $127 million) for the Group and $235 million (2007: $125 million) for the Company.
Comprises gain arising from the allocation of shares in Visa Inc. measured at fair value. In addition, the Group has recognised a $72 million gain through its associate, Cards NZ Limited,on that associate’s allocation of Visa Inc. shares (refer footnote 7 below).
Gross proceeds on sale of premises is $109 million (2007: $63 million).
September 2008 includes a $72 equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ Limited, on Visa shares in New Zealand.
Total income includes external dividend income of $44 million (2007: $99 million) for the Group and $20 million (2007: $1 million) for the Company.

78 ANZ Annual Report 2008

Notes to the Financial Statements
4: Expenses
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Acceptances
Loan capital, bonds and notes
Other

965
13,805
741
1,653
1,183
6,000
407

962
10,033
671
1,210
915
4,628
489

854
10,155
–
603
1,183
4,469
302

854
6,786
–
394
915
3,509
386

Controlled entities

24,754–18,908–17,566672

12,844304

Total interest expense

24,75418,90818,23813,148Interest expense is analysed by type of financial liabilities as follows:
Financial liabilities not at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss

23,626
1,128

18,036872

17,929309

12,801347

24,75418,90818,23813,148i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans (refer note 45)
Superannuation costs – defined contribution plans
Equity-settled share-based payments (refer note 46)
Temporary staff
Other

256
2,067
5
208
84
148
493

236
1,892
11
180
62
131
455

177
1,459
–
166
72
112
382

163
1,314
6
139
50
94
331

Total personnel expenses

For personal use only

2008
$m

Operating expenses

3,261

2,967

2,368

2,097

ii) Premises
Amortisation of leasehold improvements (refer note 21)
Depreciation of buildings and integrals (refer note 21)
Rent
Utilities and other outgoings
Other

27
22
305
136
24

22
22
254
138
26

21
4
213
92
19

16
4
169
96
19

Total premises expenses

514

462

349

304

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software written-off
Other

73
69
208
81
131
2
45

50
71
208
73
134
16
41

61
46
175
58
97
2
18

38
44
174
54
100
14
13

Total computer expenses

609

593

457

437

iv) OtherAdvertising and public relations
Amortisation of other intangible assets (refer note 19)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 21)
Impairment of Intangible – Origin Australia
Freight and cartage
Loss on sale and write-off of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Telephone
Travel
Other

182
7
12
66
34
54
22
72
122
182
58
169
151

157
6
12
57
–
53
3
43
115
130
55
152
125

125
5
7
54
34
46
21
47
84
153
30
118
254

97
4
8
44
–
46
2
48
74
89
27
102
222

1,131

908

978

763

181

23

148

22

Total other expensesv) Restructuring
Total operating expenses

5,696

4,953

4,300

3,623

Total expenses

30,45023,861

22,538

16,771

1 Comprises software amortisation of $127 million (2007: $122 million), refer note 19, and computer depreciation of $81 million (2007: $86 million), refer note 21. The Company comprises
software amortisation of $115 million (2007: $109 million), refer note 19, and computer depreciation of $60 million (2007: $65 million), refer note 21.

Financial Report 79

Notes to the Financial Statements
5: Compensation of Auditors
Consolidated

The Company

2007
$’000

2008
$’000

2007
$’000

KPMG Australia
Audit or review of financial reports of the Company or Group entities
Other audit-related services1
Other assurance services2

5,648
2,415
198

6,696
2,210
110

4,285
1,637
198

5,624
1,575
110

Total

8,261

9,016

6,120

7,309

Overseas related practices of KPMG Australia
Audit or review of financial reports of Group entities
Other audit-related services1
Other assurance services2

3,131
872
12

2,678
760
–

752
316
–

584
374
–

4,015

3,438

1,068

958

12,276

12,454

7,188

8,267

For personal use only

2008
$’000

Total compensation of auditors

Group policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent withthe role of auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as the Australian Prudential Regulation Authority (APRA). KPMG Australia or anyof its related practices may not provide services that are perceived to be materially in conflict with the role of auditor. These include consulting advice and subcontracting of operational activities
normally undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its own work. However, non-audit services that are not perceived
to be materially in conflict with the role of auditor may be provided by KPMG Australia or any of its related practices subject to the approval of the Audit Committee.
1 Includes prudential supervision reviews for central banks and work required for local statutory purposes.
2 Other assurance services comprises:
2008
$’000

2007
$’000

ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Compliance testing for securitisationtransaction
Training courses		

28
106
6

–
–
–

–
70

66
44

Total

210

110

Consolidated

80 ANZ Annual Report 2008

Notes to the Financial Statements
6: Current Income Tax Expense
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Current tax expense/(income)
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of		 temporary differences
Benefits arising from previously unrecognised tax losses, tax credits,		 or temporary differences of a prior period that is used to reduce:
		 – current tax expense

1,202
1

1,847
(2)

534
–

1,185
(4)

(5)

(101)

97

(238)

(10)

(66)

(7)

(65)

Total income tax expense charged in the Income Statement

1,188

1,678

624

878

Operating profit before income tax

4,515

5,865

3,960

4,429

Prima facie income tax expense at 30%

1,355

1,760

1,188

1,329

Change in income tax expense due to:Overseas tax rate differential
Rebateable and non-assessable dividends
Other non-assessable income
Profit from associated and joint venture entities
Recognition of previously unrecognised capital losses
Restatement of deferred tax balances for New Zealand tax rate change
Structured transaction
Foreign exchange translation of US Hybrid loan capital
Other

23
(9)
–
(112)
–
(1)
(90)
–
21

30
(10)
(3)
(75)
(54)
24
–
–
8

(2)
(541)
–
–
–
–
(90)
38
31

(2)
(340)
–
–
(54)
–
–
(67)
16

1,187

1,680

624

882

1

(2)

–

(4)

Total income tax expense charged in the Income Statement

1,188

1,678

624

878

Effective Tax Rate

26.3%

28.6%

15.8%

19.8%

Australia

733

1,073

552

797

Overseas

455

605

72

81

182

135

122

99

For personal use only(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:

Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income Statement.

Income tax (over) provided in previous years(b) Income tax recognised directly in equity
The following income tax amounts were charged directly to equity during the period

Tax consolidation
The Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.
The Company is the head entity in the tax-consolidated group. Tax expense/income and deferred tax liabilities/assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the taxconsolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by the Company(as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable toor receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the Company
and the other members of the tax-consolidated group in accordance with the arrangement.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its income tax payment obligations.

Financial Report 81

Notes to the Financial Statements
7: Dividends
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Ordinary dividends1
Interim dividend
Final dividend2
Bonus option plan adjustment

1,192
1,381
(67)

1,144
1,267
(48)

1,192
1,381
(67)

1,144
1,267
(48)

Dividends on ordinary shares

2,506

2,363

2,506

2,363

For personal use only

2008
$m

1 Dividends are not accrued and are recorded when paid.
2 Proposed final dividend of $1,511 million for 2008, based on the forecast number of ordinary shares on issue at the dividend record date, is not included in the table above.

A final dividend of 74 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 18 December 2008 (2007: final dividendof 74 cents, paid 21 December 2007, fully franked). The 2008 interim dividend of 62 cents, paid 1 July 2008, was fully franked (2007: interim
dividend of 62 cents, paid 2 July 2007, fully franked).
The tax rate applicable to the franking credits attached to the 2008 interim dividend and to be attached to the proposed 2008 final dividend
is 30% (2007: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2008
and 2007 were as follows:

Paid in cash1
Satisfied by issue of shares2

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

–
2,506

1,921
442

–
2,506

1,921
442

2,506

2,363

2,506

2,363

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Preference dividends
Euro Trust Securities

46

37

–

–

Dividends on preference shares

46

37

–

–

1 During the year ended 30 September 2008, cash of $1,487 million was paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
Cash of the same amount was received from the issue of shares pursuant to dividend reinvestment plan underwriting agreements. There was no net cash outflow to ANZ.
2 Includes shares issued to participating shareholders under the dividend reinvestment plan and shares issued in accordance with dividend reinvestment plan underwriting agreements.

Euro Trust Securities

Dividend Franking AccountOn 13 December 2004, the Group issued 500,000 Euro Floating Rate
Non-cumulative Trust Securities (“Euro Trust Securities”) at 1,0 00
each into the European market, raising 500 million ($871 million
at the spot rate at the date of issue, net of issue costs). The Euro
Trust Securities comprise 2 fully paid securities – an interest paying
unsecured note issued by a United Kingdom subsidiary (ANZ Jackson
Funding PLC) and a fully paid 1,000 preference share issued by
the Company, which are stapled together and issued as a Euro Trust
Security by ANZ Capital Trust III.

The amount of franking credits available to the Company for thesubsequent financial year is $35 million (2007: $580 million) after
adjusting for franking credits that will arise from the payment of tax onAustralian profits for the 2008 financial year, $648 million of franking
credits which will be utilised in franking the proposed 2008 final
dividend and franking credits that may not be accessible by the Company
at present.

Distributions on Euro Trust Securities are non-cumulative and arepayable quarterly in arrears (on 15 March, 15 June, 15 September,
15 December of each year) based upon a floating distribution rateequal to 3 month EURIBOR rate plus a 66 basis point margin. At eachpayment date the 3 month EURIBOR rate is reset for the next quarter.
Dividends are not payable on a preference share while it is stapled
to a note. If distributions are not paid on Euro Trust Securities, theCompany may not pay dividends or return capital on its ordinary
shares or any other share capital or security ranking equal or below thepreference share component. (Refer to note 28 for further details.)

There are presently no significant restrictions on the payment
of dividends from controlled entities to the Company. Various
capital adequacy, liquidity, statutory reserve and other prudential
requirements must be observed by certain controlled entities andthe impact on these requirements caused by the payment of cash
dividends is monitored.

82 ANZ Annual Report 2008

Restrictions which Limit the Payment of Dividends

There are presently no restrictions on payment of dividends by
the Company. Reductions of shareholders’ equity through paymentof cash dividends is monitored having regard to the regulatory
requirements to maintain a specified capital adequacy ratio.

Notes to the Financial Statements
7: Dividends (continued)

For personal use only

In particular, the Australian Prudential Regulation Authority (APRA)
has advised that a bank under its supervision must consult with it
before declaring a coupon payment on a Tier 1 instrument, including
a dividend, if the bank has incurred a loss, or proposes to pay coupon
payments on Tier 1 instruments (including dividends) which exceed
the level of current year profits.
If any dividend, interest or redemption payments are not made,or other distributions are not paid, on the scheduled payment dateor shares or other qualifying Tier 1 securities are not issued on theapplicable conversion or redemption dates on the Group’s Euro Trust
Securities, US Trust Securities, UK Stapled Securities, ANZ Convertible
Preference Shares and Convertible Notes in accordance with theirterms, the Group may be restricted from declaring or paying any
dividends or other distributions on ANZ ordinary shares and theEuro Trust Securities for up to 12 months from the date of nonpayment or failure to issue. This restriction is subject to a numberof exceptions.

Dividend Reinvestment Plan
During the year, 20,500,208 ordinary shares were issued at $27.33
per share and 22,046,238 ordinary shares at $20.82 to participating
shareholders under the dividend reinvestment plan (2007: 3,613,226
ordinary shares at $28.25 per share, and 11,621,468 ordinary sharesat $29.29 per share). All eligible shareholders can elect to participate
in the dividend reinvestment plan. In addition, 28,270,906 ordinary
shares were issued at $27.71 and 33,263,186 ordinary sharesat $21.14 (2007: nil) to UBS Nominees Pty Ltd and a nominee of
J P Morgan Australia Limited respectively in accordance with dividend

reinvestment plan underwriting agreements.
A discount of 1.5% will be applied when calculating the “Acquisition
Price” used in determining the number of ordinary shares to beprovided under the dividend reinvestment plan and bonus option
plan terms and conditions. This discount will apply in respect of the2008 final dividend and will continue to apply to future dividends
until such time as the Company announces otherwise.
For the 2008 final dividend, the “Pricing Period” under the dividend
reinvestment plan and bonus option plan terms and conditions will
be fifteen trading days commencing on and including 14 November
2008. For the 2008 final dividend, it is intended that a specified
number of ordinary shares in respect of the balance of the dividend
not reinvested by shareholders in the dividend reinvestment planor foregone by shareholders under the bonus option plan, will be
underwritten pursuant to an agreement with UBS AG, Australia Branch.

Bonus Option Plan
The amount of dividends paid during the year has been reduced
as a result of certain eligible shareholders participating in thebonus option plan and foregoing all or part of their right todividends. These shareholders were issued bonus shares.
During the year, 2,838,335 ordinary shares were issued under thebonus option plan (2007: 1,729,427 ordinary shares). Details ofchanges to the bonus option plan are described above in respectof the dividend reinvestment plan.

8: Earnings per Ordinary Share
Consolidated
2008

2007

170.4

224.1

3,327
8
46
3,273
1,921.1
162.2

4,187
7
37
4,143
1,848.5
218.3

3,273
41
55
63
–
1

4,143
44
50
21
–
–

Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the year
Less: profit attributable to minority interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)
Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: ANZ StEPS interest expense
Add: UK Hybrid interest expense
Add: Convertible Preference Shares interest expense
Add: Convertible Perpetual Notes interest expense
Earnings used in calculating diluted earnings per share
Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary sharesweighted average number of convertible US Trust Securities at current market priceweighted average number of convertible ANZ StEPS securities
weighted average number of convertible UK Hybrid Securities
weighted average number of Convertible Preference Sharesweighted average number of Convertible Perpetual Notes

3,433

4,258

1,921.1
6.7
73.4
57.9
56.9
0.2
0.4

1,848.5
15.2
42.0
34.5
10.7
–
–

Used in calculating diluted earnings per share

2,116.6

1,950.9

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in thecalculation of diluted earnings per share is approximately 1 million.
Financial Report 83

Notes to the Financial Statements
9: Liquid Assets
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than three months

4,849
4,752
9,740
5,689

3,667
4,540
4,679
4,101

1,260
3,682
7,450
5,689

822
2,813
3,159
3,824

Total liquid assets

25,03016,98718,081

10,618Maturity analysis based on original term to maturity
Less than three months
More than three months

15,645
9,385

12,307
4,680

10,133
7,948

6,701
3,917

Total liquid assets

25,03016,98718,081

10,618For personal use only

2008
$m

10: Due from Other Financial Institutions
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Maturity analysis based on original term to maturity
Less than three months
More than three months

7,842
2,020

6,767
1,273

7,023
1,550

5,339
795

Total due from other financial institutions

9,862

8,040

8,573

6,134

11: Trading Securities

ListedOther securities and equity securities
Unlisted
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills
Other securities and equity securities
Total trading securities

84 ANZ Annual Report 2008

Consolidated
2008$m

The Company

2007
$m

2008
$m

2007
$m

10

58

10

58

10

58

10

58

71
2,373
3,736
8,987

556
4,034
2,305
8,214

71
2,162
3,736
6,867

556
3,899
2,305
6,541

15,167

15,10912,836

13,301

15,177

15,167

12,846

13,359

Notes to the Financial Statements
12: Derivative Financial Instruments
The principal credit contracts used by the Group are default
swaps. Default swaps are contracts that provide for a specified
payment to be made to the purchaser of the swap following
a defined credit event.

Derivatives are subject to the same types of credit and market risk
as other financial instruments, and the Group manages these risks
in a consistent manner.

Trading positions
Trading positions consist of both sales to customers and market
making activities. Sales to customers include the structuringand marketing of derivative products to customers which enable
them to take or mitigate risks. Market making activities consist ofderivatives entered into principally for the purpose of generating
profits from short-term fluctuations in price or margins. Positions
may be traded actively or held over a period of time to benefit
from expected changes in market rates.

For personal use only

Derivative instruments are contracts whose value is derived fromone or more underlying variables or indices, require little or no initial
net investment and are settled at a future date. Derivatives include
contracts traded on registered exchanges and contracts agreed
between counterparties, called “Over the Counter” or “OTCs”. The
use of derivatives and their sale to customers as risk management
products is an integral part of the Group’s trading activities.
Derivatives are also used to manage the Group’s own exposure tofluctuations in exchange and interest rates as part of its asset andliability management activities (i.e. balance sheet risk management).

Types of derivative instruments
The principal foreign exchange rate contracts used by the Group are
forward foreign exchange contracts, currency swaps and currency
options. Forward foreign exchange contracts are agreements to buy orsell a specified quantity of foreign currency on a specified future dateat an agreed rate. A currency swap generally involves the exchange,
or notional exchange, of equivalent amounts of two currencies anda commitment to exchange interest periodically until the principal
amounts are re-exchanged on a future date. Currency options provide
the buyer with the right, but not the obligation, either to purchaseor sell a fixed amount of a currency at a specified rate on or before afuture date. As compensation for assuming the option risk, the option
writer generally receives a premium at the start of the option period.
The principal commodity contracts used by the Group are forward
commodity contracts, commodity swaps and commodity options.
Forward commodity contracts are agreements for the payment of
the difference between a specified commodity price and a fixed rate
on a notional volume of the commodity at a future date. A commodity
swap generally involves the exchange of the return on the commodity
for a fixed or floating interest payment without the exchange of theunderlying commodity or principal amount. Commodity options
provide the buyer with the right, but not the obligation, to exchange
the difference between a specified commodity price and a fixed
rate on a notional volume of the commodity at a future date.
As compensation for assuming the option risk, the option writer
generally receives a premium at the start of the option period.
In certain circumstances the option premium is paid at the endof the option period.
The principal interest rate contracts used by the Group are forward
rate agreements, interest rate futures, interest rate swaps andoptions. Forward rate agreements are contracts for the paymentof the difference between a specified interest rate and a reference
rate on a notional deposit at a future settlement date. There is
no exchange of principal. An interest rate future is an exchange
traded contract for the delivery of a standardised amount of a fixedincome security or time deposit at a future date. Interest rate swap
transactions generally involve the exchange of fixed and floatinginterest payment obligations without the exchange of the underlying
principal amounts. Interest rate options provide the buyer withthe right but not the obligation either to receive or pay interest at
a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives apremium at the start of the option period.

Derivatives, except for those that are specifically designated as
effective hedging instruments, are classified as held for trading.
The held for trading classification includes two categories ofderivative instruments: those held as trading positions andthose used for the Group’s balance sheet risk management.

Gains or losses, including any current period interest, from thechange in fair value of trading positions are recognised in the income
statement as ‘other income’ in the period in which they occur.
Balance sheet risk management
The Group designates balance sheet risk management derivatives
into hedging relationships in order to minimise income statement
volatility. This volatility is created by differences in the timing ofrecognition of gains and losses between the derivative and thehedged item. Hedge accounting is not applied to all balance sheet
risk management positions.
Gains or losses from the change in fair value of balance sheet
risk management derivatives that form part of an effective hedging
relationship are recognised in the income statement based on
the hedging relationship. Any ineffectiveness is recognised in theincome statement as ‘other income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from thechange in fair value of balance sheet risk management positions thatare not designated into hedging relationships are recognised in theincome statement as ‘other income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The tables on the following pages provide an overview of the Group’s
and the Company’s foreign exchange rate, commodity, credit andinterest rate derivatives. They include all trading and balance sheet
risk management contracts. Notional principal amounts measure
the amount of the underlying physical or financial commodity andrepresent the volume of outstanding transactions. They are nota measure of the risk associated with a derivative. The derivative
instruments become favourable (assets) or unfavourable (liabilities)
as a result of fluctuations in market rates relative to their terms.
The aggregate contractual or notional amount of derivative financial
instruments on hand, the extent to which instruments are favourable
or unfavourable, and as a consequence the aggregate fair values ofderivative financial assets and liabilities, can fluctuate significantly
from time to time. The fair values of derivative instruments held andnotional principal amounts are set out as follows.

Financial Report 85

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)

For personal use only

Fair value

Consolidated at
30 September 2008

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral

Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldTrading

Total fair valueof derivatives

Hedging
Net investment
in foreign operations
Assets Liabilities$m$m

Notional
principal
amount$m

Assets$m

Liabilities$m

Fair value
Assets Liabilities$m$m

222,003205,894
134
8,929
17,761–

7,698
15,94072
899–(4,400)(7,956)(8,328)
(17)
–
(942)
2,607

–
727
–
–
–
–

–
(307)
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

42
–
–
–
–
–

–
–
–
–
–
–

7,740 (7,956)
16,667 (8,635)
72
(17)
899
–
–
(942)
(4,400) 2,607

454,721

20,209 (14,636)

727

(307)

–

–

42

–

20,978 (14,943)

27,3491,609(1,692)

–

–

–

–

–

–

1,609

150,302
1,087,769
92,841
23,156
22,743(32)
31
9,990 (10,253)
1,712 (1,658)
225
–
(115)
–

–
524
–
–
–

–
(812)
–
–
–

2
323
86
–
–

–
(343)
(47)
–
–

–
–
–
–
–

–
–
–
–
–

(32)
33
10,837 (11,408)
1,798 (1,705)
–
225
(115)
–

Cash flow
Assets Liabilities$m$m

Assets$m

Liabilities$m(1,692)

1,376,811

11,958(12,058)

524

(812)

411

(390)

–

–

12,893 (13,260)

Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

12,455
14,414

1,212
201

–
(32)

–
–

–
–

–
–

–
–

–
–

–
–

1,212
201

–
(32)

Total credit derivatives purchased

26,869

1,413

(32)

–

–

–

–

–

–

1,413

(32)

Structured credit derivatives sold
Other credit derivatives sold14,060
11,256–48(1,704)
(296)

–
–

–
–

–
–

–
–

–
–

–
–

–
48

(1,704)(296)

25,31648(2,000)

–

–

–

–

–

–

48

(2,000)52,185

1,461(2,032)

–

–

–

–

–

–

1,461

(2,032)35,237 (30,418)

1,251(1,119)

411

(390)

42

–

36,941 (31,927)

Total credit derivatives soldTotal

86 ANZ Annual Report 2008

1,911,066

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)

For personal use only

Fair value

Consolidated at
30 September 2007

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral

Trading
Notional
principal
amount$m

Assets$m

Total fair valueof derivatives

Hedging

Liabilities$m

Fair value
Assets Liabilities$m$mCash flow
Assets Liabilities$m$m

Net investment
in foreign operations
Assets Liabilities$m$m

Assets$m

Liabilities$m(6,570)(6,907)(6)–(1,001)
1,612

278,479
141,881
144
6,476
9,718
–

4,605 (6,570)
6,259 (6,320)
7
(6)
1,047
–
– (1,001)(1,875) 1,612

–
440
–
–
–
–

–
(587)
–
–
–
–

1
–
–
–
–
–

–
–
–
–
–
–

31
–
–
–
–
–

–
–
–
–
–
–

4,637
6,699
7
1,047
–
(1,875)436,698

10,043 (12,285)

440

(587)

1

–

31

–

10,515 (12,872)

Commodity contracts
Derivative contracts

15,4291,664(1,600)

–

–

–

–

–

–

1,664

(1,600)Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

137,039
944,079
96,815
26,621
22,711

13
7,733
961
142
–

(15)
(7,902)
(987)
–
(115)

–
538
–
–
–

–
(284)
–
–
–

2
311
18
–
–

–
(114)
(9)
–
–

–
–
–
–
–

–
–
–
–
–

15
8,582
979
142
–

(15)
(8,300)
(996)
–
(115)

1,227,265

8,849(9,019)

538

(284)

331

(123)

–

–

9,718

(9,426)

Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

10,976
10,970

152
71

–
(84)

–
–

–
–

–
–

–
–

–
–

–
–

152
71

–
(84)

Total credit derivatives purchased

21,946

223

(84)

–

–

–

–

–

–

223

(84)

Structured credit derivatives sold
Other credit derivatives sold10,976
7,689

–
84

(119)
(79)

–
–

–
–

–
–

–
–

–
–

–
–

–
84

(119)
(79)

18,665

84

(198)

–

–

–

–

–

–

84

(198)

40,611

307

(282)

–

–

–

–

–

–

307

(282)

20,863 (23,186)

978

(871)

332

(123)

31

–

Total credit derivatives soldTotal

1,720,003

22,204 (24,180)

Financial Report 87

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)

For personal use only

Fair value

The Company at
30 September 2008

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral

Trading

Total fair valueof derivatives

Hedging

Notional
principal
amount$m

Assets$m

Liabilities$m

Fair value
AssetsLiabilities$m$m

199,708
213,523
134
8,726
17,574–

7,148
14,97372
888–(3,909)(7,759)(10,615)
(17)
–
(930)
2,380

–
523
–
–
–
–

–
(307)
–
–
–
–

–
–
–
–
–
–

Cash flow
AssetsLiabilities$m$m

Assets$m

Liabilities
$m

–
–
–
–
–
–

7,148
15,49672
888–(3,909)(7,759)(10,922)
(17)
–
(930)
2,380

439,665

19,172(16,941)

523

(307)

–

–

19,695(17,248)

Commodity contracts
Derivative contracts

27,334

1,610(1,697)

–

–

–

–

1,610

(1,697)

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold57,827
860,676
75,80722,922
22,630

19
7,913
1,699
168
–

(25)
(8,123)(1,653)
–
(114)

–
457
–
–
–

–
(292)
–
–
–

2
188
86
–
–

–
(224)
(47)
–
–`

21
8,558
1,785
168
–

(25)
(8,639)(1,700)–(114)

1,039,862

9,799(9,915)

457

(292)

276

(271)

10,532(10,478)

Credit default swaps
Structured credit derivatives purchased
Other credit derivatives purchased

12,455
14,408

1,212
201

–
(32)

–
–

–
–

–
–

–
–

1,212
201

–
(32)

Total credit derivatives purchased

26,863

1,413

(32)

–

–

–

–

1,413

(32)

Structured credit derivatives sold
Other credit derivatives sold14,060
11,256–48(1,704)
(296)

–
–

–
–

–
–

–
–

–
48

(1,704)(296)

25,31648(2,000)

–

–

–

–

48

(2,000)52,1791,461(2,032)

–

–

–

–

1,461

(2,032)

1,559,040

32,042(30,585)

980

(599)

276

(271)

33,298(31,455)

Total credit derivatives soldTotal

88 ANZ Annual Report 2008

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)

For personal use only

Fair value
Trading

Total fair valueof derivatives

Hedging

Notional
principal
amount$m

Assets$m

Liabilities$m

Fair value
AssetsLiabilities$m$m

263,920
164,933
144
6,047
9,481
–

4,332
7,078
7
1,033
–
(1,419)(6,115)(9,051)
(6)
–
(995)
1,513

–
356
–
–
–
–

–
(581)
–
–
–
–

–
–
–
–
–
–

444,525

11,031(14,654)

356

(581)

Commodity contracts
Derivative contracts

15,4291,664(1,600)–Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold85,748730,968
81,56026,56822,700

11
6,460
957
124
–

(13)
(6,542)
(957)
–
(115)

947,544

7,552

Credit default swaps
Structured credit derivatives purchased
Other credit derivatives purchased

10,976
10,948

Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold

The Company at
30 September 2007

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral

Total credit derivatives sold

Total

Cash flow
AssetsLiabilities$m$m

Assets$m

Liabilities
$m

–
–
–
–
–
–

4,332
7,434
7
1,033
–
(1,419)(6,115)(9,632)
(6)
–
(995)
1,513

–

–

11,387(15,235)

–

–

–

1,664

(1,600)

–
222
–
–
–

–
(176)
–
–
–

2
218
18
–
–

–
(72)
(9)
–
–

13
6,900
975
124
–

(13)
(6,790)
(966)
–
(115)

(7,627)

222

(176)

238

(81)

8,012

(7,884)

152
71

–
(84)

–
–

–
–

–
–

–
–

152
71

–
(84)

21,924

223

(84)

–

–

–

–

223

(84)

10,976
7,689

–
84

(119)
(79)

–
–

–
–

–
–

–
–

–
84

(119)
(79)

18,665

84

(198)

–

–

–

–

84

(198)

40,589

307

(282)

–

–

–

–

307

(282)

1,448,087

20,554(24,163)

578

(757)

238

(81)

21,370(25,001)

Financial Report 89

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)

For personal use only

Hedging Relationships
There are three types of allowable hedging relationships: fair value hedges, cash flow hedges and hedges of a net investment in a foreign
operation. Each type of hedging has specific requirements when accounting for the fair value changes in the hedging relationship. For details
on the accounting treatment of each type of hedging relationship refer to note 1.
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may
affect the income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Group’s fairvalue hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial
instruments due to movements in market interest rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship isterminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or group of items
and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item is derecognisedfrom the Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other income’ as a part of the gain or loss
on disposal.

Gain (loss) arising from fair value hedges
Hedged item (attributable to the hedged risk only)
Hedging instrument

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

(566)
587

39
(35)

(1,176)
1,132

349
(353)

Cash flow hedges
The risk being hedged in a cash flow hedge is the potential volatility in future cash flows that may affect the income statement. Volatility in the
future cash flows may result from changes in interest rates or changes in exchange rates arising from recognised financial assets and liabilities
and highly probable forecast transactions. The Group’s cash flow hedges consist principally of interest rate swaps, forward rate agreements
and foreign currency swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets andliabilities which bear interest at variable rates or which are expected to be refunded or reinvested in the future. The Group primarily applies cash
flow hedge accounting to its variable rate loan assets, variable rate liabilities and short term re-issuances of fixed rate customer and wholesale
deposit liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio
of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on theeffective portions of derivatives designated as cash flow hedges.
The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is deferred to the hedging reserve
which forms part of shareholders’ equity. Amounts deferred in equity are recognised in the income statement in the period during which
the hedged forecast transactions take place and is fully amortised when the hedging relationship matures. The schedule below shows the
movements in the hedging reserve:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Balance at start of year
Adjustment on adoption of AASB 2005-11

153
–

227
(141)

80
–

40
–

Restated balance at start of year
Items recorded in net interest income
Tax effect of items recorded in the income statement
Valuation gain taken to equity
Tax effect of net gain on cash flow hedges

153
(53)
18
(56)
17

86
(10)
3
106
(32)

80
7
(2)
(49)
15

40
–
–
57
(17)

Closing Balance

79

153

51

80

1 All NZD revenue related cash flow hedging was de-designated at 30 September 2006. The amount deferred in the hedging reserve was transferred to retained earnings at 1 October 2006 on adoptionof AASB 2005-1.

90 ANZ Annual Report 2008

Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:

For personal use only

Consolidated

Variable rate loan assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities
Total hedging reserve

The Company

2008
$m

2007
$m

2008
$m

2007
$m

289
(96)
(114)

(64)
135
82

221
(95)
(75)

(53)
79
54

79

153

51

80

The mechanics of hedge accounting results in the gain (or loss) in the hedging reserve above being released into the income statement at
the same time that the corresponding loss (or gain) attributable to the hedged item impacts the income statement. It will not necessarily bereleased to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes
in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates
may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.
All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipatedto take place over the next 0–10 years (2007: 0–10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other income’ in theincome statement. Ineffectiveness recognised in the income statement in respect of cash flow hedges amounted to a $12 million gain for theGroup (2007: $7 million gain) and a $9 million gain for the Company (2007: $4 million loss).

Hedges of net investment in foreign operations
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange differences arising on consolidation offoreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using forward foreign exchange contracts
or by financing with borrowings in the same currency as the foreign functional currency involved.
Ineffectiveness arising from hedges of net investments in foreign operations and recognised as ‘other income’ in the income statement
amounted to $4 million loss (2007: $1 million loss).

13: Available-for-sale Assets
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

ListedOther government securities
Other securities and equity investments

165
2,686

208
2,992

165
1,748

208
2,601

Total listed

2,851

3,200

1,913

2,809

Unlisted
Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances

2,602
957
10,352
718

1,791
652
7,659
704

2,602
39
9,831
718

1,791
73
6,006
704

Total unlisted

14,62910,806

13,1908,574

Total available-for-sale assets

17,48014,006

15,103

11,383

An impairment loss of $98 million was recognised in the Income Statement (2007: nil), refer note 16.

Available-for-sale assets by maturities
Based on remaining term to maturity at 30 September 2008
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances

2,431
1,086
5,689
117

171
27
4,369
517

–
9
1,886
84

–
–
101
–

–
–
524
–

–
–
469
–

2,602
1,122
13,038718

Total available-for-sale assets

9,323

5,084

1,979

101

524

469

17,480Financial Report 91

Notes to the Financial Statements
13: Available-for-sale Assets (continued)
Based on remaining term to maturity at 30 September 2007
Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances

1,791
617
5,882
263

–
186
577
22

–
20
3,096
419

–
–
72
–

–
–
574
–

–
37
450
–

1,791
860
10,651
704

Total available-for-sale assets

8,553

785

3,535

72

574

487

14,006

For personal use only

Less than
3 months$m

14: Net Loans and Advances
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables (refer below)
Commercial bills
Other

8,915
8,892
175,826
130,755
11,174
2,234
295
2,592

9,724
7,991
157,384
103,631
10,255
2,214
349
1,300

7,017
7,421
129,856
90,619
1,262
1,015
287
2,226

7,835
6,649
113,950
68,642
1,196
973
349
828

Total gross loans and advances

340,683

292,848239,703

200,422(3,496)(2,600)600(2,262)(2,277)570(2,632)(508)
194(1,598)(348)
167(5,496)(3,969)(2,946)(1,779)Total net loans and advances

335,187

288,879

236,757

198,643

Lease receivablesa) Finance lease receivables
Gross finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

563
1,169
309

571
1,131
208

179
491
238

176
617
179

Less: unearned future finance income on finance leases

(273)

(238)

(158)

(121)

Net investment in finance lease receivables

1,768

1,672

750

851

48
107
38

179
124
1

17
65
25

–
1
–

193

304

107

1

Total lease receivables

1,961

1,976

857

852

Present value of gross investment in finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

519
1,009
273

567
1,075
185

150
468
215

167
553
157

1,801

1,827

833

877

3,694
7,406
74

3,406
6,773
76

432
814
16

392
778
26

11,174

10,255

1,262

1,196

Less: Provision for credit impairment (refer note 16)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination feesb) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

Hire purchase receivables
Less than 1 year
1 to 5 years
Later than 5 years

92 ANZ Annual Report 2008

Notes to the Financial Statements
15: Impaired Financial Assets

For personal use only

Presented below is a summary of impaired financial instruments that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the impairment allowance account. This contrasts to financial assets carried on the balance sheet atfair value, for which any impairment loss is recognised as a component of the overall fair value, and no impairment allowance account is used.
Detailed information on impaired financial assets is provided in Note 33 Financial Risk Management.
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

1,750
846
77

666
–
36

1,348
846
72

491
–
31

Gross impaired financial assets
Individual provisions
Non-performing loans
Non-performing commitments and contingencies

2,673

702

2,266

522

(646)
(29)

(261)
(9)

(459)
(29)

(172)
(9)

Net impaired financial assets

1,998

432

1,778

341

Accruing loans past due 90 days or more2
These amounts are not classified as impaired assets as they are either 90 daysor more past due and well secured, or are portfolio managed facilities that canbe held on an accrual basis for up to 180 days past due

1,060

561

758

429

Summary of impaired financial assets
Non-performing loans
Restructured items1
Non-performing commitments and contingencies

1 Represents customer facilities which for reasons of financial difficulty have been re-negotiated on terms which the Bank considers as uncommercial but necessary in the circumstances,
and are not considered non-performing. Includes both on and off balance sheet exposures.
2 Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting
to $115 million (2007: $87 million) for the Group and $82 million (2007: $66 million) for the Company. The remainder of 90 day past due accounts are predominately held on an accrualbasis having been assessed as well secured.

16: Provision for Credit Impairment
Consolidated

The Company

Provision movement analysis

2008
$m

2007
$m

2008
$m

2007
$m

New and increased provisions
Australia
New Zealand
Asia
Other overseas markets

880
187
23
147

587
81
31
12

758
–
–
140

486
–
1
8

Provision releases

1,237
(105)

711
(121)

898
(72)

495
(88)

Recoveries of amounts previously written off

1,132
(100)

590
(151)

826
(63)

407
(115)

Individual provision charge
Impairment on available-for-sale assets
Collective provision charge

1,032
98
818

439
–
83

763
98
712

292
–
52

Charge to income statement

1,948

522

1,573

344

Financial Report 93

Notes to the Financial Statements
16: Provision for Credit Impairment (continued)

For personal use only

Movement in provision for credit impairment by financial asset class
Liquid assets and duefrom other financial
institutions

Net loans and advances
and acceptances

Credit related
commitments1

Other financial assets

Total provision

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Collective provision
Balance at start of year
Provisions disposed
Adjustment for exchange rate fluctuations
Charge to income statement

–
–
–
–

–
–
–
–

1,483
–
4
575

1,426
(4)
(32)
93

–
–
–
–

–
–
–
–

509
–
7
243

514
–
5
(10)

1,992
–
11
818

1,940
(4)
(27)
83

Total collective provision

–

–

2,062

1,483

–

759

509

2,821

1,992

Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

–
–
–
–
–
–

–
–
–
–
–
–

261
1,012
–
(28)
(699)
100

280
434
(15)
(20)
(569)
151

–
–
–
–
–
–

–
–
–
–
–
–

9
20
–
–
–
–

6
5
1
–
(3)
–

270
1,032
–
(28)
(699)
100

286
439
(14)
(20)
(572)
151

Total individual provision

–

–

646

261

–

–

29

9

675

270

Total provision for
credit impairment

–

–

2,708

1,744

–

–

788

518

3,496

2,262

Consolidated

The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.

Consolidated

Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate
fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously
written off

Total individual provision

Personal

Institutional

New ZealandBusinesses

Asia Pacific

Other business
units2Less
Institutional
Asia Pacific

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

102
384

70
340

108
427

141
10

37
157

47
52

13
32

21
31

2
9

1
1

(1)
–
(404)

1
–
(380)

6
(23)
(162)

(3)
(17)
(84)

(1)
(5)
(95)

(1)
(3)
(75)

(2)
–
(28)

(12)
–
(30)

(1)
–
(9)

71

71

10

61

14

17

4

3

152

102

366

108

107

37

19

13

Net loans andadvances andacceptances

2007
$m

2008
$m

2007
$m

(1)
3

–
261
– 1,012

280
434

–
–
–

(1)
–
(1)

–
–
–

–
(28)
(699)

(15)
(20)
(569)

1

–

–

(1)

100

151

2

2

–

(1)

646

261

1 Comprises undrawn facilities and customer contingent liabilities.
2 Other business units comprise ING Australia and Group Centre.

RatiosProvision for credit impairment as a % of total advances
IndividualCollective
Bad debts written off as a % of total advances

94 ANZ Annual Report 2008

Consolidated
2008
%

2007
%

0.2
0.8
0.2

0.1
0.7
0.2

Notes to the Financial Statements
16: Provision for Credit Impairment (continued)

For personal use only

Movement in provision for credit impairment by financial asset class (continued)
Liquid assets and duefrom other financial
institutions

Net loans and advances
and acceptances

Other financial assets

Credit related
commitments1

Total provision

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Collective provision
Balance at start of year
Provisions disposed
Adjustment for exchange rate fluctuations
Charge to income statement

–
–
–
–

–
–
–
–

1,028
–
7
484

993
–
(27)
62

–
–
–
–

–
–
–
–

389
–
8
228

388
–
11
(10)

1,417
–
15
712

1,381
–
(16)
52

Total collective provision

–

–

1,519

1,028

–

–

625

389

2,144

1,417

Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

–
–
–
–
–
–

–
–
–
–
–
–

172
743
4
(23)
(500)
63

178
287
(4)
(17)
(387)
115

–
–
–
–
–
–

–
–
–
–
–
–

9
20
–
–
–
–

7
5
–
–
(3)
–

181
763
4
(23)
(500)
63

185
292
(4)
(17)
(390)
115

Total individual provision

–

–

459

172

–

–

29

9

488

181

Total individual provision
for credit impairment

–

–

1,978

1,200

–

–

654

398

2,632

1,598

The Company

The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.

Personal

Institutional

Asia Pacific

Other business
units2Less Institutional
Asia Pacific

Net loans andadvances andacceptances

The Company

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

62
300
(1)
–
(323)
51

40
269
1
–
(303)
55

107
425
5
(23)
(162)
10

136
14
(3)
(17)
(83)
60

2
6
2
–
(5)
1

1
3
(2)
–
(1)
1

2
9
(1)
–
(9)
1

1
1
–
–
–
–

(1)
3
(1)
–
(1)
–

–
–
–
–
–
(1)

172
743
4
(23)
(500)
63

178
287
(4)
(17)
(387)
115

89

62

362

107

6

2

2

2

–

(1)

459

172

Total individual provision

1 Comprises undrawn facilities and customer contingent liabilities.
2 Other business units comprise ING Australia and Group Centre.

RatiosProvision for credit impairment as a % of total advances
IndividualCollective
Bad debts written off as a % of total advances

The Company
2008
%

2007
%

0.2
0.8
0.2

0.1
0.7
0.2

Financial Report 95

Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Total shares in controlled entities
Total shares in associates1 (refer note 39)
Total shares in joint venture entities2 (refer note 40)

–
2,608
1,767

–
1,749
1,681

9,144
869
–

8,405
582
–

Total shares in controlled entities, associates and joint venture entities

4,375

3,430

10,0138,987

For personal use only

2008
$m

1 Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity.
2 Investments in joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity.

Acquisitions of controlled entities
There were no material controlled entities acquired during the year ended 30 September 2008.
On 23 February 2007, the Group obtained control of Stadium Australia Group, which owns the long-term leasehold of the Telstra Stadiumin Sydney. The acquisition was executed through the Diversified Infrastructure Trust. Prior to this, the Group was the sole senior lender to,
and a holder of convertible notes and stapled securities issued by Stadium Australia Group.
Stadium Australia Group contributed revenues of $35 million and net profit of $6 million to the Group for the period from 1 March 2007 to
30 September 2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profit for the year ended
30 September 2007 would have been $53 million and $9 million respectively.
In 2008, ANZ sold down its interest in the trust, and deconsolidated it from 1 March 2008 (refer page 98).
On 24 April 2007, the Group obtained a controlling interest in ETRADE Australia Limited (ETrade Australia), an online stockbroker. The Group
has since obtained 100% ownership of the shares in ETrade Australia. Prior to this, the Group held a stake in the entity and accounted for it
as an associate, applying the equity method of accounting.
ETrade Australia contributed revenues of $37 million and net profit of $9 million to the Group for the period from 1 May 2007 to 30 September
2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profit for the year ended 30 September 2007
would have been $95 million and $19 million respectively. These amounts have been calculated using the Group’s accounting policies and by
adjusting the results of the subsidiary to reflect the impact as if the fair value adjustments had applied from 1 October 2006 less the amountof the share of the associate’s earnings actually recognised by the Group, together with the consequential tax effects.
In addition, the Group and the Company obtained controlling stakes in the following entities in 2007:
Citizens Security Bank (CSB) – CSB is a community bank operating in Guam. In July 2007, the Group acquired 100% of CSB for $28 million.
ANZ Vientiane Commercial Bank (VCB) – VCB is a commercial bank operating in Laos. In September 2007, the Group acquired 60% of
VCB for $12 million.
Rabinov Property Management Limited (Rabinov) – Rabinov is the manager and responsible entity of a listed diversified property trust.

The Company’s investments in ETrade Australia, CSB, VCB and Rabinov are carried at cost. The Company, therefore, does not recognise
goodwill separately.

96 ANZ Annual Report 2008

Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)

For personal use only

Details of aggregate assets and liabilities of controlled entities acquired by the Group (Stadium Australia Group, ETrade Australia, CSB,VCB and Rabinov) and cost of acquisitions, for the purposes of measuring goodwill on acquisitions of controlled entities are as follows:

Consolidated at 30 September 2007

Liquid assets and due from other financial institutions
Financial assets – trading and available-for-sale
Net loans and advances
Premises and equipment
Deferred tax assets
Intangible assets1
Other assets
Due to other financial institutions
Deposits and other borrowings2
Payables and other liabilities
Provisions and contingent liabilities
Deferred tax liabilities

Net assets

Acquiree’s
carrying
amount$m

Fair value
$m

131
335
106
162
–
56
41
(2)
(456)
(331)
(2)
(7)

131
335
106
217
6
57
41
(4)
(240)
(348)
(2)
(17)

33

282

Goodwill calculation
Net assets of acquired entities
Interest previously held
Minority interests

282
(23)
(5)

Net identifiable assets acquired

254

Cost of acquisition
Cash paid
Equity instruments issued as purchase consideration
Loan receivable or other instruments existing on date of acquisition
Direct costs relating to acquisitions

252
99
179
6

Total cost of acquisitions

536

Goodwill

282$m

1 Fair value excludes $31 million of previously recognised goodwill of the acquiree, now included in total goodwill.
2 Included in deposits and other borrowings of acquiree were loans payable and other debt instruments held by the Group prior to acquisition. On acquisition these instruments are no longer
financial assets of the Group. They have been treated as a cost of acquisition.

Financial Report 97

Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
The fair value of assets and liabilities acquired are based on discounted cash flow models. No restructuring provisions were created.
The acquired entities did not have significant contingent liabilities.

For personal use only

Of the total amount of goodwill on acquisition of $282 million recognised by the Group, $264 million relates to ETrade Australia.
Net cash consideration paid in acquisitions was as follows:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Cash consideration paid and direct costs relating to acquisitions
Less: Balances acquired of cash and equivalents

10
–

258
(55)

6
–

229
(52)

Outflow of cash to acquire subsidiaries, net of cash acquired

10

203

6

177

Disposal of controlled entities
During January – March 2008, the Group progressively disposed of 46% of its investment in Diversified Infrastructure Trust (DIT). A principal
investment held by DIT was in Stadium Australia Group, which owns the long-term leasehold of the ANZ Stadium in Sydney. Due to the
distribution of voting power to non-ANZ unit holders, ANZ no longer holds a controlling interest and de-consolidated DIT from 1 March 2008.
Subsequent to de-consolidation, and as of September 2008, ANZ treats the remaining holding as an investment in associate (refer to note 39
for further details).
On 31 October 2006, the controlled entities Fleet Partners Pty Limited and Truck Leasing Limited were sold.
Details of aggregate assets and liabilities of controlled entities disposed by the Group are as follows:
Consolidated

The Company

Carrying amount

Carrying amount

2008
$m

2007
$m

2008
$m

2007
$m

–
200
–
150
(123)
(50)
–

1,420
2
–
25
(1,239)
(63)
(1)

n/a
n/a
174
n/a
n/a
n/a
n/a

n/a
n/a
–
n/a
n/a
n/a
n/a

177

144

174

–

Less: Interest retained
Net assets disposed

(98)
79

–
144

(97)
77

–
–

Cash consideration received
Provisions for warranties and indemnities

81
–

377
(38)

81
–

–
–

Gain on disposal

2

195

4

–

Net loans and advances
Premises and equipment
Shares in controlled entities
Other assets, including allocated goodwill
Deposits and other borrowings
Payables and other liabilities
Provision for long-term employee benefits

Net proceeds received resulting in cash inflow for the Group was as follows:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Cash consideration received and direct costs relating to disposals
Less: Balances of disposed cash and equivalents

81
–

377
–

81
–

–
–

Inflow of cash from disposals, net of cash disposed

81

377

81

–

98 ANZ Annual Report 2008

Notes to the Financial Statements
18: Tax Assets
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

680
–

–
2

680
14

–
9

680

2

694

9

129
98

160
6

–
–

–
–

227

166

–

–

–
357

–
105

–
323

–
78

357

105

323

78

1,264

273

1,017

87

Total current tax assets

809

160

680

–

Deferred tax assets recognised in profit and loss
Collective provision for impaired loans and advances
Individual provision for impaired loans and advances
Deferred fee revenue
Provision for employee entitlements
Other provisions
Other

850
218
87
130
288
268

600
95
73
119
182
126

650
165
65
99
187
208

429
71
55
86
127
9

1,841

1,195

1,374

777

47
58
–

19
–
–

40
50
–

21
–
–

105

19

90

21

(1,491)(1,101)(1,127)

(711)

455

113

337

87

Unused realised tax losses (on revenue account)

7

17

–

7

Total unrecognised deferred tax assets

7

17

–

7

For personal use only

Australia
Current tax asset
Deferred tax assets

New ZealandCurrent tax asset
Deferred tax assets

Overseas Markets
Current tax asset
Deferred tax assets

Total current and deferred tax assets

Deferred tax assets recognised directly in equity
Defined benefit obligations
Available-for-sale revaluation reserve
Foreign currency translation reserve

Set-off of deferred tax assets pursuant to set-off provisions1

Net deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount sufficient to enable the benefit
to be realised
the conditions for deductibility imposed by tax legislation are complied with; andno changes in tax legislation adversely affect the Group in realising the benefit.

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.

Financial Report 99

Notes to the Financial Statements
19: Goodwill and Other Intangible Assets
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Gross carrying amount
Balance at start of year
Additions through business combinations
Writedown
Derecognised on disposal
Foreign currency exchange differences

3,126
5
(4)
–
(63)

2,900
282
–
(6)
(50)

–
–
–
–
–

–
–
–
–
–

Balance at end of year1

3,064

3,126

–

–

Gross carrying amount
Balance at start of year
Additions
Additions from internal developments
Additions through business combinations
Foreign currency exchange differences
Impairment

1,222
–
286
–
(2)
(59)

987
2
202
55
(1)
(23)

1,087
–
256
–
(1)
(59)

888
2
188
33
(1)
(23)

Balance at end of year

1,447

1,222

1,283

1,087

Accumulated amortisation and impairment
Balance at start of year
Amortisation expense2 (refer note 4)
Foreign currency exchange differences
Impairment

671
134
1
(36)

550
128
(1)
(6)

576
120
–
(36)

469
113
–
(6)

Balance at end of year

770

671

660

576

Net book value
Balance at start of year

551

437

511

419

Balance at end of year

677

551

623

511

Net book value
Balance at start of the year

3,677

3,337

511

419

Balance at end of the year1

3,741

3,677

623

511

For personal use only

Goodwill

Software and other intangible assets

Goodwill, software and other intangible assets

1 Excludes notional goodwill in equity accounted entities.
2 Comprises software amortisation expense of $127 million (September 2007: $122 million) and amortisation of other intangible assets $7 million (September 2007: $6 million). The
Company comprises software amortisation expense of $115 million (September 2007: $109 million) and amortisation of other intangible assets $5 million (September 2007: $4 million).

Goodwill allocated to cash-generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003.
Discussion of the goodwill and impairment testing for the cash generating unit containing this goodwill is included in note 2(vii).

100 ANZ Annual Report 2008

Notes to the Financial Statements
20: Other Assets
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Accrued interest/prepaid discounts
Accrued commission
Defined benefit superannuation plan surplus (see note 45)
Prepaid expenses
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other

1,819
129
–
111
433
185
42
2,359

1,626
124
7
97
671
201
31
1,324

1,329
89
–
55
351
5
42
1,481

1,052
111
–
41
550
–
31
499

Total other assets

5,078

4,081

3,352

2,284

For personal use only

2008
$m

21: Premises and Equipment

Freehold and leasehold land and buildings
At costDepreciation

Leasehold improvements
At costAmortisation

Furniture and equipment
At costDepreciation

Computer equipment
At costDepreciation

Capital works in progress
At costTotal premises and equipment

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

640
(208)

838
(204)

97
(42)

95
(37)

432

634

55

58

356
(202)

318
(193)

236
(127)

195
(106)

154

125

109

89

938
(568)

843
(503)

725
(418)

641
(361)

370

340

307

280

937
(722)

949
(720)

682
(527)

711
(540)

215

229

155

171

421

165

379

141

1,592

1,493

1,005

739

Financial Report 101

Notes to the Financial Statements
21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Freehold and leasehold land and buildings1
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

634
82
–
(261)
(22)
(1)

437
45
208
(29)
(22)
(5)

58
2
–
(1)
(4)
–

44
21
–
(1)
(4)
(2)

Carrying amount at end of year

432

634

55

58

Leasehold improvements
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Amortisation
Foreign currency exchange difference

125
55
–
(1)
(27)
2

95
57
1
(4)
(22)
(2)

89
41
–
(1)
(21)
1

66
40
–
(1)
(16)
–

Carrying amount at end of year

154

125

109

89

Furniture and equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

340
100
–
(4)
(66)
–

267
138
4
(10)
(57)
(2)

280
85
–
(4)
(54)
-

206
121
4
(7)
(44)
–

Carrying amount at end of year

370

340

307

280

Computer equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

229
66
–
(1)
(81)
2

218
100
4
(4)
(86)
(3)

171
43
–
–
(60)
1

169
66
4
(3)
(65)
–

Carrying amount at end of year

215

229

155

171

Capital works in progress
Carrying amount at beginning of year
Net additions

165
256

92
73

141
238

42
99

Carrying amount at end of year

421

165

379

141

Total premises and equipment

1,592

1,493

1,005

739

For personal use only

2008
$m

1 Includes integrals.

102 ANZ Annual Report 2008

Notes to the Financial Statements
22: Deposits and Other Borrowings
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Certificates of deposit
Term deposits
Other deposits bearing interest and other borrowings
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt1

52,34689,225100,575
9,367
22,422
10,031

31,90369,60095,074
10,143
16,914
10,10947,65662,22579,098
5,322
9,027
–

27,94944,43674,471
5,562
5,647
–

Total deposits and other borrowings

283,966

233,743

203,328

158,065

For personal use only

2008
$m

1 Included in this balance is debenture stock of controlled entities. $8.3 billion of debenture stock of the consolidated subsidiary company Esanda Finance Corporation Limited (Esanda),
together with accrued interest thereon, is secured by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity other than landand buildings ($13.9 billion). All controlled entities of Esanda (except for some controlled entities which have been placed or are expected to be placed in voluntary de-registration and haveminimal book value) have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged
as collateral are those in Esanda and its subsidiaries.
In addition, this balance also includes NZD1.7 billion of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and the accrued interest thereon which are secured
by a floating charge over all assets of UDC (NZD2.0 billion).

23: Income Tax Liabilities
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

–
–

615
20

–
–

610
–

–

635

–

610

61
247

13
115

2
243

(23)
103

308

128

245

80

Total current and deferred income tax liability

308

763

245

690

Total current tax payable

61

628

2

587

Deferred tax liabilities recognised in profit and loss
Lease Finance
Treasury instruments
Capitalised expenses
Other

234
637
147
674

217
148
130
609

114
658
53
524

80
157
46
452

1,692

1,104

1,349

735

31
15
–

66
21
45

21
–
–

34
–
45

46

132

21

79

(1,491)(1,101)(1,127)(711)

Net deferred tax liability

247

135

243

103

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences2

46

46

11

4

Total unrecognised deferred tax liabilities

46

46

11

4

Australia
Current tax payable
Deferred tax liabilities

Overseas Markets
Current tax payable
Deferred tax liabilities

Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve

Set-off of deferred tax liabilities pursuant to set-off provisions1

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within thesame taxable group.
2 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.

Financial Report 103

Notes to the Financial Statements
24: Payables and Other Liabilities
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Creditors
Accrued interest and unearned discounts
Defined benefit plan obligations (see note 45)
Accrued charges
Security settlements
Other liabilities

3,441
3,563
154
734
379
1,805

5,021
2,809
75
619
590
1,393

3,025
2,561
132
499
318
949

4,431
2,001
75
413
588
879

Total payables and other liabilities

10,076

10,507

7,484

8,387

For personal use only

2008
$m

25: Provisions

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries3
Other4
Total provisions

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

444
183
169
421

400
37
186
398

340
155
140
273

299
32
138
241

1,217

1,021

908

710

Reconciliations of the carrying amounts of each class of provision, except for employee entitlements, are set out below:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision

37
185
(15)
(24)

74
43
(44)
(36)

32
153
(9)
(21)

61
40
(34)
(35)

Carrying amount at the end of the year

183

37

155

32

Non-lending losses, frauds and forgeries3
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision

186
37
(38)
(16)

187
79
(14)
(66)

138
15
(5)
(8)

125
69
(10)
(46)

Carrying amount at the end of the year

169

186

140

138

Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision

398
281
(186)
(72)

330
335
(204)
(63)

241
263
(183)
(48)

235
253
(197)
(50)

Carrying amount at the end of the year

421

398

273

241

Other provisions4

1 The aggregate liability for employee benefits largely comprises employee entitlements provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which thatbusiness is undertaken and includes termination benefits. Costs related to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probablethat the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Non-lending losses, frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events.
4 Other provisions comprise various other provisions including loyalty programs, workers’ compensation and make-good provisions on leased premises.

104 ANZ Annual Report 2008

Notes to the Financial Statements
26: Bonds and Notes
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Bonds and notes by currency
United States dollars
USD
Great British pounds
GBP
Australian dollars
AUD
New Zealand dollars
NZD
Japanese yen
JPY
Euro
EUR
Hong Kong dollars
HKD
Swiss francs
CHF
Canadian dollars
CAD
Norwegian krone
NOKSingapore dollars
SGD
Czech koruna
CZK

24,783
7,263
2,984
1,414
5,644
17,365
3,230
2,560
1,692
53
240
95

20,306
7,963
1,300
1,546
1,395
13,664
3,301
2,562
1,911
–
51
76

15,940
5,608
2,934
131
4,853
15,479
2,975
2,246
1,692
53
65
95

14,570
6,264
1,300
379
1,307
11,816
2,921
2,562
1,911
–
51
76

Total bonds and notes

67,32354,07552,071

43,157For personal use only

2008
$m

Financial Report 105

Notes to the Financial Statements
27: Loan Capital

Consolidated

For personal use only

Hybrid loan capital (subordinated)
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)1
US Trust Securities
USD 350m non-cumulative trust securities due 2053
USD 750m non-cumulative trust securities due 2053
UK Stapled Securities
ANZ Convertible Preference Shares (ANZ CPS)
Convertible Notes (ANZ CN)

Perpetual subordinated notes
USD
300m
floating rate notes
AUD
350m
floating rate notes
NZD
835m
fixed rate notes5

The Company

Interest rate
%

2008
$m

2007
$m

2008
$m

2007
$m

BBSW + 1.00

–

1,000

–

1,000

4.48
5.36
6.54
BBSW + 2.50
BBSW + 2.00

438
938
1,014
1,081
600

397
851
1,033
–
–

438
938
1,014
1,081
600

397
851
1,033
–
–

4,071

3,281

4,071

3,281

375
–
700

340
350
–

375
–
–

340
350
–

1,075

690

375

690

–
–
–
–
12
400
–
–
–
380
350
500
297
446
892
313
298
300
555
293
349
350
100
100
403
204
293
821
289
210
100
365
500

2
2
5
2
90
400
624
86
482
380
350
454
289
452
798
283
298
300
552
299
349
350
100
100
400
214
299
853
–
–
–
–
–

–
–
–
–
12
400
–
–
–
380
350
500
297
446
892
313
298
300
555
–
349
350
100
100
403
–
–
821
289
210
100
365
500

2
2
5
2
90
400
624
–
482
380
350
454
289
452
798
283
298
300
552
–
349
350
100
100
400
–
–
853
–
–
–
–
–

LIBOR + 0.15
BBSW + floating margin
9.66

Subordinated notes4
USD
JPY
USD
JPY
USD
AUD
USD
NZD
EUR
AUD
AUD
USD
AUD
GBP
EUR
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
AUD
AUD
AUD
AUD
AUD

1.8m
192.8m4.1m
236.2m
79m
400m
550m
100m
300m
380m
350m
400m
300m
200m
500m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
290m
210m
100m
365m
500m

floating rate notes due 2007
floating rate notes due 2007
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2010
floating rate notes due 20132
fixed notes due 20132
floating rate notes due 20132
floating rate notes due 20142
fixed notes due 20143
floating rate notes due 20152
fixed notes due 20153
fixed notes due 20152
fixed notes due 20153
floating rate notes due 2016
fixed notes due 20163
floating rate notes due 20162
fixed notes due 20163
fixed notes due 20163
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 20183
fixed rate notes due 20173
floating rate notes due 20172
floating rate notes due 20172
floating rate notes due 20182
floating rate notes due 20182

LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.53
BBSW + 0.29
LIBOR + 0.55
6.46
EURIBOR + 0.375
BBSW + 0.41
6.50
LIBOR + 0.20
6.00
5.625
4.45
LIBOR + 0.21
6.25
BBSW + 0.22
4.75
7.16
6.50
BBSW + 0.24
7.30
BBSW + 0.4
6.38
7.60
8.23
4.75
7.75
BBSW + 0.75
BBSW + 0.70
BBSW + 1.20
BBSW + 2.05

9,120

8,813

8,330

7,915

Total loan capital

14,266

12,784

12,776

11,886

Loan capital by currency
AUD
Australian dollars
NZD
New Zealand dollars
USD
United States dollars
GBP
Great British pounds
EUR
Euro
JPY
Japanese yen

6,069
1,490
2,576
3,239
892
–

4,266
898
3,046
3,290
1,280
4

6,069
–
2,576
3,239
892
–

4,266
–
3,046
3,290
1,280
4

14,266

12,784

12,776

11,88612
3
4
5

On 15 September 2008 the security was converted to ordinary shares in accordance with the terms of the security.
Callable five years prior to maturity.
Callable five years prior to maturity and reverts to floating rate if not called.
Included within the carrying amount are, where appropriate, revaluations associated with fair value hedge accounting or an election to fair value the note through the income statement.
Fixed until the first call date, 18 April 2013, whereupon the rate resets to the Five Year Swap Rate +2.00, if not called and remains fixed until the next call date, 18 April 2018 whereupon
reverts to floating at the Three month FRA rate +3.00 and is calculable quarterly thereafter.

Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes.
The loan capital, except for the ANZ StEPS, US Trust Securities, UK Stapled Securities, ANZ CPS and ANZ CN constitutes Tier 2 capital as defined by APRA for capital adequacy
purposes. ANZ StEPS, US Trust Securities and ANZ CN constitute innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes. UK Stapled Securities and ANZ
CPS constitute non-innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes.

106 ANZ Annual Report 2008

Notes to the Financial Statements
27: Loan Capital (continued)

For personal use only

ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
On 23 September 2003, the Company issued 10 million ANZ StEPS
at $100 each pursuant to a prospectus dated 14 August 2003 raising$1 billion (excluding issue costs of $13 million: net raising $987
million). ANZ StEPS comprised two fully paid securities – an interest
paying unsecured note (issued by ANZ Holdings (New Zealand)
Limited, a New Zealand subsidiary of the Company) stapled to a
fully paid $100 preference share (issued by the Company).
All ANZ StEPS were converted to ordinary shares on 15 September
2008.
US Trust Securities
On 27 November 2003, the Company issued 1.1 million USD
non-cumulative Trust Securities (“US Trust Securities”) at USD1000
each pursuant to an offering memorandum dated 19 November 2003
raising USD1.1 billion. US Trust Securities comprise two fully paid
securities – an interest paying unsecured note (issued by Samson
Funding Limited, a wholly owned NZ subsidiary of the Company) anda fully paid USD1,000 preference share (issued by the Company),
which are stapled together and issued as a US Trust Security by ANZ
Capital Trust I or ANZ Capital Trust II (the “Trusts”). Investors have theoption to redeem the US Trust Security from the Trusts and hold theunderlying stapled security.
The issue was made in two tranches:
USD350 million tranche with a coupon of 4.48% and was issued
through ANZ Capital Trust I. After 15 January 2010 and at any
coupon date thereafter, ANZ has the discretion to redeem the
US Trust Security for cash. If it does not exercise this discretion,
the investor is entitled to require ANZ to exchange the US Trust
Security into a number of ordinary shares based on the formulain the offering memorandum.
USD750 million tranche with a coupon of 5.36% and was issued
through ANZ Capital Trust II. It has the same conversion features
as the USD350 million tranche but from 15 December 2013.

Distributions on US Trust Securities are non-cumulative and arepayable half yearly in arrears and are funded by payments received
by the respective Trusts on the underlying note. Distributions
are subject to certain payment tests (i.e. APRA requirements anddistributable profits being available). Distributions are expected tobe payable on 15 June and 15 December of each year. Dividends are
not payable on the preference share while it is stapled to the note.
If distributions are not paid on the US Trust Securities, the Groupmay not pay dividends or distributions, or return capital on ANZ
ordinary shares or any other share capital or security ranking equal
or junior to the preference share component.
At any time in the Company’s discretion or upon the occurrenceof certain other “conversion events”, such as the failure of therespective Trust to pay in full a distribution within seven businessdays of the relevant distribution payment date, the notes that are
represented by the relevant US Trust Securities will be automaticallyassigned to a subsidiary of the Company and the preference sharesthat are represented by the relevant US Trust Securities will be
distributed to investors in redemption of such US Trust Securities.
The distributed preference shares will immediately become dividend
paying and holders will receive non-cumulative dividends equivalent
to the scheduled payments in respect of the US Trust Securities
for which the preference shares were distributed. If the US Trust
Securities are not redeemed or bought back prior to the 15 December
2053, they will be converted into preference shares, which in turnwill be mandatorily converted into a variable number of ordinary
shares based upon the formula in the offering memorandum.

The preference shares forming part of the US Trust Securities rank
equal to the preference shares issued in connection with the UK
Stapled Securities, ANZ CPS, ANZ CN and Euro Trust Securities inall respects. Except in limited circumstances, holders of US Trust
Securities do not have any right to vote in general meetings of
the Company.
On winding up of the Company, the rights of US Trust Security holders
will be determined by the preference share component of US Trust
Security. These preference shares rank behind all depositors andcreditors, but ahead of ordinary shareholders.
The US Trust Securities qualify as Innovative Tier 1 capital as definedby APRA.
UK STAPLED SECURITIESOn 15 June 2007, the Company issued 9,000 non-cumulative,
mandatory convertible stapled securities (“UK Stapled Securities”)
at £50,000 each pursuant to a prospectus dated 12 June 2007
raising £450 million. UK Stapled Securities comprise two fully paid
securities – an interest paying unsecured subordinated £50,000
note issued by the Company through its New York Branch anda £50,000 preference share issued by the Company, which arestapled together.
Distributions on UK Stapled Securities are non-cumulative andare payable half yearly in arrears at a fixed rate of 6.54% (untilconverted into ordinary shares or the rate is reset as provided
in the prospectus). Distributions are subject to certain payment
tests (including APRA requirements and distributable profits being
available). Distributions are expected to be payable on 15 June and
15 December of each year. Dividends are not payable on a preference
share while it is stapled to a note. If distributions are not paid on UK
Stapled Securities, the Group may not pay dividends or distributions,or return capital, on ANZ ordinary shares or any other share capital or
security ranking equal or junior to the preference share component.
At any time in the Company’s discretion or upon the occurrenceof certain other events, such as the commencement of proceedings
for the winding up of the Company, the note component of the UK
Stapled Security will be assigned to the Company and the holder
will retain only the preference share component of the UK Stapled
Security.
On 15 June 2012 (“conversion date”), or an earlier date undercertain circumstances, UK Stapled Securities will mandatorily
convert into a variable number of ordinary shares in the Company
determined in accordance with the formula in the prospectus. The
mandatory conversion to ordinary shares is however deferred for five
years if the conversion tests set out in the prospectus are not met.
The preference shares forming part of the UK Stapled Securities
rank equally with the preference shares issued in connection withUS Trust Securities, ANZ CPS, ANZ CN and Euro Trust Securities.
Except in limited circumstances, holders of UK Stapled Securities
do not have any right to vote in general meetings of the Company.
As noted above, in a winding up of the Company, the note
component of the UK Stapled Security will be assigned to
the Company and the holder will retain only the preference sharecomponent of the UK Stapled Security. Accordingly, the rights ofinvestors in UK Stapled Securities in a winding up of the Company
are the rights conferred by the preference share component of
UK Stapled Securities. These preference shares rank behind all
depositors and creditors, but ahead of ordinary shareholders.
The UK Stapled Securities qualify as Non-innovative Tier 1 capitalas defined by APRA.
Financial Report 107

Notes to the Financial Statements
27: Loan Capital (continued)

For personal use only

ANZ Convertible Preference Shares (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million ANZ
CPS at $100 each pursuant to a prospectus dated 4 September
2008 raising $1,081 million (excluding issue costs of $13 million:
net raising of $1,068 million). ANZ CPS are fully-paid, preferred,
non-cumulative mandatorily convertible preference shares. ANZ
CPS are listed on the Australian Stock Exchange.
Distributions on ANZ CPS are non-cumulative and are payable
quarterly in arrears on each 15 December, 15 March, 15 June,
15 September and will be franked in line with the franking applied
to the ordinary shares. The distribution will be based on a floating
distribution rate equal to the aggregate of the 90 day bank billrate plus a 250 basis point margin, multiplied by one minus theAustralian tax rate. At each quarter, the 90 day bank bill rate is reset
for the next quarter. Should the distribution not be fully franked,
the terms of the security provide for a cash gross up for the amountof the franking benefit not provided. Distributions are subject tothe absolute discretion of the Board of Directors of the Company
and certain payment tests (including APRA requirements anddistributable profits being available). If distributions are not paid
on ANZ CPS, the Group may not pay dividends or distributions, or
return capital on ANZ ordinary shares or any other share capital or
security ranking equal or junior to the ANZ CPS.
On 16 June 2014 (the ‘conversion date’), or an earlier date undercertain circumstances, ANZ CPS will mandatorily convert into avariable number of ordinary shares in the Company determinedin accordance with the formula in the prospectus based on $100
divided by the average market price of ordinary shares over a 20 day
trading period ending at the conversion date less a 2.5% discount.
The mandatory conversion to ordinary shares is however deferred
for a quarter if the conversion tests set out in the prospectus are
not met.
The ANZ CPS rank equally with the ANZ CNs and the preference
shares issued in connection with US Trust Securities, UK Stapled
Securities and Euro Trust Securities. Except in limited circumstances,
holders of ANZ CPS do not have any right to vote in general meetingof the Company.
In a winding up of the Company, the ANZ CPS rank behind all
depositors and creditors, but ahead of ordinary shareholders.
ANZ CPS qualify as Non-innovative Residual Tier 1 capital as definedby APRA.

108 ANZ Annual Report 2008

Convertible Notes (ANZ CN)
On 26 September 2008, the Company issued 1,200 ANZ CN at$500,000 each (‘face value’) raising $600 million. ANZ CN are
perpetual, subordinated, unsecured, interest bearing convertible
notes issued by the Company through its New York Branch.
Distributions on ANZ CN are non-cumulative and are payable monthly
in arrears. The distribution will be based on a floating distribution
rate equal to the 30 day bank bill rate plus a 200 basis point
margin. Distributions are subject to certain payment tests (including
APRA requirements and distributable profits being available).
If distributions are not paid on ANZ CN, the Group may not pay
dividends or distributions, or return capital on ANZ ordinary sharesor any other share capital or security ranking equal or junior to the
ANZ CN.
On 26 September 2009, and on each 3rd interest payment datethereafter (the ‘conversion dates’), or an earlier date undercertain circumstances, ANZ CN holders have the option to request
conversion into a variable number of ordinary shares in the Company
determined in accordance with the formula in the notes terms basedon $500,000 divided by the average market price of ordinary shares
over a 15 day trading period ending at the conversion date less a
1% discount.
ANZ has call rights for face value on various dates includinginterest payment dates or if the holders request conversion to
ordinary shares. Call rights require APRA’s prior written approval.
The ANZ CN rank equally with the preference shares issued
in connection with US Trust Securities, UK Stapled Securities,
ANZ CPS and Euro Trust Securities. Except in limited circumstances,
holders of ANZ CN do not have any right to vote in general meetingof the Company.
In a winding up of the Company, the ANZ CN rank behind all
depositors and creditors, but ahead of ordinary shareholders.
ANZ CN qualify as Innovative Tier 1 capital as defined by APRA.

Notes to the Financial Statements
28: Share Capital
The Company
2008

2007

Ordinary shares each fully paid
Preference shares each fully paid

2,040,656,484
500,000

1,864,678,820
500,000

Total number of issued shares

2,041,156,484

1,865,178,820

For personal use only

Number of issued shares

Ordinary shares
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of the shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upona poll one vote for each share held.
The Company

Number of issued shares

2008

2007

Balance at start of year
Bonus option plan1
Dividend reinvestment plan1
DRP underwriting
ANZ employee share acquisition plan
ANZ share option plan2
Conversion of StEPS
Consideration for purchase of ETrade Australia

1,864,678,820
2,838,335
42,546,446
61,534,092
2,975,312
4,115,132
61,968,347–

1,836,572,115
1,729,427
15,234,694––
7,840,564–
3,302,020

Balance at end of year

2,040,656,484

1,864,678,820

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Ordinary share capital
Balance at start of year
Dividend reinvestment plan1
DRP underwriting
ANZ employee share acquisition plan2
Treasury shares3,4
ANZ share option plan2
Conversion of StEPS
Consideration for purchase of ETrade Australia

8,946
1,019
1,487
80
(10)
67
1,000
–

8,271
442
–
57
(55)
132
–
99

8,946
1,019
1,487
80
(10)
67
1,000
–

8,271
442
–
57
(55)
132
–
99

Balance at end of year

12,5898,946

12,5898,946

1 Refer to note 7 for details of plan.
2 Refer to note 46 for details of plan.
3 On-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,356,857 shares were issued during the September 2008 year to theGroup’s Employee Share Trust for settlement of amounts due under share-based compensation plans.
4 As at 30 September 2008, there were 4,374,248 Treasury shares outstanding (2007: 2,592,893).

Financial Report 109

Notes to the Financial Statements
28: Share Capital (continued)
Preference shares

Euro Trust Securities

For personal use only

On 13 December 2004, the Company issued 500,000 Euro Floating
Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at¤1000 each pursuant to the offering circular dated 9 December 2004,
raising $871 million (at the spot rate at the date of issue, net of issue
costs). Euro Trust Securities comprise two fully paid securities – aninterest paying unsecured note (issued by ANZ Jackson Funding PLC,a United Kingdom subsidiary of the Company) and a fully paid, ¤1000
preference share (issued by the Company), which are stapled together
and issued as a Euro Trust Security by ANZ Capital Trust III (the Trust).
Investors have the option to redeem the Euro Trust Security from theTrust and hold the underlying stapled security.
Distributions on Euro Trust Securities are non-cumulative and arepayable quarterly in arrears and are funded by payments received
by the Trust on the underlying note and/or preference share. The
distribution is based upon a floating distribution rate equal to
the 3 month EURIBOR rate plus a 66 basis point margin up until
15 December 2014, after which date the distribution rate is the
3 month EURIBOR rate plus a 166 basis point margin. At eachpayment date the 3 month EURIBOR rate is reset for the next
quarter. Distributions are subject to certain payment tests (i.e.
APRA requirements and distributable profits being available).
Distributions are expected to be payable on 15 March, 15 June,
15 September and 15 December of each year. Dividends are notpayable on the preference shares while they are stapled to the note,
except for the period after 15 December 2014 when the preference
share will pay 100 basis points to fund the increase in the margin.
If distributions are not paid on Euro Trust Securities, the Group may
not pay dividends or distributions, or return capital on ANZ ordinary
shares or any other share capital or security ranking equal or junior
to the preference share component.

At any time at ANZ’s discretion or upon the occurrence of certain
other “conversion events”, such as the failure of the Trust to pay
in full a distribution within seven business days of the relevant
distribution payment date or the business day prior to 15 December
2053, the notes that are represented by the relevant Euro Trust
Securities will be automatically assigned to a Branch of the Company
and the fixed number of preference shares that are represented by
the relevant Euro Trust Securities will be distributed to investors in
redemption of such Euro Trust Securities. The distributed preference
shares will immediately become dividend paying and holders will
receive non-cumulative dividends equivalent to the scheduled
payments in respect of the Euro Trust Securities for which thepreference shares were distributed.
The preference shares forming part of each Euro Trust Security rank
equal to the Convertible Notes (ANZ CN), ANZ Convertible Preference
Shares (ANZ CPS) and the preference shares issued in connection
with the US Trust Securities and UK Stapled Securities in all respects.
Except in limited circumstances, holders of Euro Trust Securities do
not have any right to vote in general meetings of the Company.
On winding up of the Company, the rights of Euro Trust Security
holders will be determined by the preference share componentof the Euro Trust Security. These preference shares rank behindall depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments
were recognised directly in equity as a reduction to the proceedsof the equity instruments to which the costs relate.
Euro Trust Securities qualify as Innovative Tier 1 Capital as definedby APRA.

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Preference share balance at start of year
– Euro Trust Securities

871

871

871

871

Preference share balance at end of year
– Euro Trust Securities

871

871

871

871

110 ANZ Annual Report 2008

Notes to the Financial Statements
29: Reserves and Retained Earnings
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

(1,209)
393

(646)
(563)

(407)
254

(116)
(291)

(816)

(1,209)

(153)

(407)

Balance at beginning of year
Share-based payments
Transfer of options lapsed to retained earnings3

70
14
(1)

63
7
–

70
14
(1)

63
7
–

Total share option reserve

83

70

83

70

c) Available-for-sale revaluation reserve
Balance at start of year
Valuation gain/(loss) recognised after tax
Cumulative (gain)/loss transferred to the income statement
Transfer on step acquisition of associate

97
(305)
60
60

2
109
(14)
–

93
(272)
63
60

(3)
100
(4)
–

Total available-for-sale revaluation reserve

(88)

97

(56)

93

d) Hedging reserve
Balance at start of year
Adjustment on adoption of AASB 2005-12

153
–

227
(141)

80
–

40
–

Restated balance at beginning of year
Gain/(loss) recognised after tax
Transfer (to)/from income statement

153
(39)
(35)

86
74
(7)

80
(34)
5

40
40
–

Total hedging reserve

79

153

51

80

(742)

(889)

(75)

(164)

For personal use onlya) Foreign currency translation reserve
Balance at beginning of year
Currency translation adjustments, net of hedges after tax
Total foreign currency translation reserveb) Share option reserve1

Total reserves

1 Further information about share based payments to employees is disclosed in note 46 to the financial statements.
2 Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1 E (ii)).
3 The transfer of balances from the share option and capital reserves to retained earnings represent items of a distributable nature.

Financial Report 111

Notes to the Financial Statements
29: Reserves and Retained Earnings (continued)
Consolidated

The Company

2007
$m

2008
$m

2007
$m

Retained earnings
Restated balance at start of year
Adjustment on adoption of AASB 2005-12

13,082–

11,084
141

9,436
–

8,173
–

Restated balance at beginning of year
Profit attributable to shareholders of the Company
Adjustment on step acquisition of associate
Transfer of options lapsed from share option reserve1,3Actuarial gain/(loss) on defined benefit plans after tax4
Ordinary share dividends paid
Preference share dividends paid

13,082
3,319
1
1
(79)
(2,506)(46)

11,2254,180––
77(2,363)
(37)

9,436
3,336
–
1
(60)
(2,506)
–

8,173
3,551
–
–
75
(2,363)–Retained earnings at end of year

13,772

13,082

10,207

9,436

Total reserves and retained earnings

13,03012,193

10,1329,272

For personal use only

2008
$m

1
2
3
4

Further information about share based payments to employees is disclosed in note 46 to the financial statements.
Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1E(ii)).
The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits (refer note 1F(vi) and note 45).

a) Foreign currency translation reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the financial statements of foreign operations,as described in note 1A(viii). When a foreign operation is sold, attributable exchange differences are recognised in the Income Statement.
b) Share option reserve
The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferredout of the reserve and into share capital when the options are exercised. Refer to note 1C(iii).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale financial assets are taken to the available-for-salerevaluation reserve. Where a revalued available-for-sale financial asset is sold, that portion of the reserve which relates to that financial asset,
is realised and recognised in the Income Statement. Where the available-for-sale financial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the Income Statement. Refer to note 1E(iii).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashflow hedges. The cumulative deferred gainor loss on the hedge is recognised in the Income Statement when the hedged transaction impacts the Income Statement. Refer to note 1E(ii).

30: Minority Interests
Consolidated
2008
$m

2007
$m

Share capital
Retained profits

29
33

16
22

Total minority interests

62

38

112 ANZ Annual Report 2008

Notes to the Financial Statements
31: Capital Management

For personal use only

ANZ pursues an active approach to capital management. This involves
on going review of the level and composition of the Group’s capitalbase, assessed against the following key objectives and policies:
Regulatory compliance such that capital levels exceed theAustralian Prudential Regulation Authority’s (APRA), ANZ’s primary
prudential supervisor, minimum prudential capital ratios (PCRs)
both at a Group and the Extended Licensed Entity (the Company
and specified subsidiaries) level, and those set by the US Federal
Reserve given the Group’s Foreign Holding Company licence;
Available capital (i.e. shareholders’ equity including preference
shares and Tier 1 loan capital) exceeds the level of Economic
Capital required to support the Ratings Agency ‘default frequency’
confidence level for a “AA” rated bank. (Economic Capital is aninternal estimate of capital levels required to support risk andunexpected losses above a desired target solvency level);
Capital levels are commensurate with ANZ maintaining its preferred“AA” credit rating category for senior long term unsecured debt
given its risk appetite outlined in its strategic plan; andCapital levels are sufficient to remain above both Economic Capitaland PCR requirements under stressed economic scenarios.

The Group achieves these objectives through an Internal Capital
Adequacy Assessment Process (ICAAP) whereby the Group
conducts a detailed strategic plan over a medium term time horizon.
This process involves:
Reviewing capital ratios, targets and levels against the Group’s
risk profile and appetite outlined in the strategic plan;
Performing ICAAP related stress-tests of those outcomes under
different economic conditions and reassessing the Group’s capital
position both before and after mitigating actions; andDetermining current and future capital requirements for theGroup and the Extended Licensed Entity and identifying strategies
to maintain capital flexibility to fund unplanned events.
From this process, a capital plan is developed which defines theframework of capital levels and the mix of components of capital.
The capital plan is maintained and updated through a monthly
review of forecasted financial performance, economic conditions
and development of business initiatives and strategies.
The Group has adopted the Tier 1 capital ratio as its principal
capital management target. Since March 2008 ANZ has set aminimum management target of 7.0%, however management
seeks to operate well above this minimum given current economic
and financial markets conditions.
For regulatory purposes, ANZ adheres to standards set by APRA.
APRA uses a risk-based capital assessment framework for Australianbanks based on internationally accepted capital measurement
standards. This risk-based approach requires eligible capital to be
divided by total risk weighted assets, with the resultant ratio being
used as a measure of a bank’s capital adequacy. For regulatory
purposes capital comprises two components, Tier 1 and Total
Qualifying Capital. From 1 January 2008, Basel II Accord principles
took effect in Australia and New Zealand, changing the way in which
ANZ measures capital and capital adequacy.

The following changes have impacted the capital ratios:
Adoption of Basel II methodologies for calculating risk weighted
assets (RWA) and expected loan losses;
Inclusion of a capital charge for operating risk and interest raterisk in the banking book;
Replacement of collective provision for loan losses (which was
included in Upper Tier 2 capital) with expected losses. A deduction
is now taken 50% from Tier 1 and 50% from Tier 2 for theexcess of expected losses over eligible provisions (net of tax);
Deductions from Total Capital under Basel I now deducted 50%
from Tier 1 and 50% from Tier 2;
Loss of AIFRS transitional relief received in July 2006;
Hybrid limits are now 25% of net Tier 1, split between ‘innovative’(15%) and ‘non-innovative’ (10%). ANZ has transitional relief until
January 2010 in respect of the ‘innovative’ limit; andIntroduction of a capital floor based upon 90% of capital required
under Basel I methodology. At 30 September 2008, the floor had
no impact on ANZ’s reported capital ratios.
Under Basel II Accord principles, Tier 1 capital comprises
shareholders’ equity adjusted to include hybrid Tier 1 instruments
treated as debt for financial reporting purposes and excludes reserves
that APRA does not allow as Tier 1 Capital. Specific deductions suchas goodwill and intangibles are deducted from Tier 1 capital andothers are deducted 50% from Tier 1 and 50% from Tier 2 capital.
Total Qualifying Capital is Tier 1 capital plus Tier 2 capital (lessspecific and 50% deductions). Tier 2 is capped at the volume of Tier
1 capital, and is split into Upper and Lower Tier 2 capital, with Lower
Tier 2 capital capped at 50% of Tier 1. Upper Tier 2 capital includes
asset revaluation type reserves, hybrid Tier 1 instruments excluded
from Tier 1, and undated subordinated notes. Lower Tier 2 capitalcomprises dated subordinated notes.
APRA determines PCRs for Tier 1 and Total Capital ratio at both aGroup and the Extended Licensed Entity level under its prudential
capital standards “APS110 – Capital Adequacy” and “APS 111 –Capital Adequacy: Measurement of Capital”, with RWA calculations
predominantly contained in “APS 113 – Capital Adequacy: Internal
Ratings-based Approach to Credit Risk”, “APS115 – Capital Adequacy:
Advanced Measurement Approach to Operational Risk”, “APS116
Capital Adequacy: Market Risk” and “APS 117 – Capital Adequacy:Interest Rate Risk in the Banking Book”. ANZ is not a Level 3 reporter
under APRA’s prudential standards.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal
Reserve and the UK Financial Services Authority who may impose
minimum capitalisation rates on those operations.
Throughout the financial year, the Company and the Group
maintained compliance with the minimum Tier 1 and Total Capitalratios set by APRA and the US Federal Reserve, as well as applicable
capitalisation rates set by local regulators in countries where theCompany operates branches and subsidiaries.

Financial Report 113

Notes to the Financial Statements
31: Capital Management (continued)
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
Basel I as at
September 07$mRegulatory Capital – Qualifying Capital
Tier 1
Shareholders’ equity and minority interests
Prudential adjustments to shareholders’ equity

26,552(2,409)22,048(2,318)Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

24,143
2,095
2,847

19,7301,033
3,119

Gross Tier 1 capital

29,08523,882

Deductions1

Transitional Tier 1 capital relief(7,856)–(6,170)716

Tier 1 capital

21,22918,428Tier 2Upper Tier 2 capital
Subordinated notes2
Deductions

1,374
9,170
(1,206)

2,296
8,826
–

Tier 2 capital

9,338

11,122n/a(1,837)

Total qualifying capital

30,567

27,713

Capital adequacy ratios
Tier 1
Tier 2

7.7%
3.4%

6.7%
4.1%

11.1%

10.8%

n/a

(0.7%)

11.1%

10.1%

For personal use only

Basel II as at
September 08$mTotal capital deductions3

Deductions
Total

1 Includes goodwill (excluding associates) of $3,064 million (2007: $3,126 million).
2 For capital adequacy calculation, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.
3 Not applicable under Basel II.

114 ANZ Annual Report 2008

Notes to the Financial Statements
32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities
The following assets are pledged as collateral:

For personal use only

Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to financethe Group’s day to day operations.
Securities provided as collateral for liabilities in standard lending and stock borrowing and lending activities, and securitised loans wherede-recognition criteria have not been met (refer to note 41 Securitisations). These transactions are conducted under terms that are customary
to standard lending, and stock borrowing and lending activities.
Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited(UDC). The debenture stock of Esanda and its subsidiaries and UDC is secured by a trust deed and collateral debentures, giving floating
charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda and UDC
have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda
and UDC respectively. The only loans pledged are those in Esanda and UDC and their subsidiaries.
Cash placed on deposit with a third party that is provided as collateral for a liability in a structured funding transaction. The funding
was raised through a subsidiary, and to achieve more favourable pricing terms, ANZ provided cash collateral, given by the Company.

The carrying amounts of assets pledged as security are as follows:

Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction

Consolidated
Carrying AmountThe Company

Related Liability

Carrying Amount

Related Liability

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

469
1,696
15,566
918

235
2,330
15,347
1,680

n/a
1,654
9,902
2,000

n/a
2,324
9,539
2,000

298
1,615
–
918

148
2,072
–
1,680

n/a
1,573
–
–

n/a
2,066
–
–

Collateral accepted as security for assets
ANZ has accepted cash as collateral on securities loaned to other parties.
ANZ has received securities that it is permitted to sell or re-pledge without the event of default by a counterparty. Where the received securities
are sold or re-pledged to third parties, ANZ is obliged to return equivalent securities.
These transactions are conducted under terms that are customary to standard stock borrowing and lending activities.
The fair value of collateral received and provided is as follows:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Securities lending activities1
Cash collateral received on securities loaned
Fair value of lent securities

2,096
2,093

3,464
3,298

2,096
2,093

3,464
3,298

Equity financing activities1
Cash collateral given on securities borrowed
Fair value of received securities

94
98

1,287
2,752

94
98

1,287
2,752

1 Additionally, ANZ has entered transactions involving the exchange of securities (scrip-for-scrip). The Group and the Company accepted stock to the value of $105 million (2007: $2,250 million)
against stock provided to counterparties to the value of $86 million (2007: $2,346 million).

Financial Report 115

Notes to the Financial Statements
33: Financial Risk Management
Strategy in using financial instruments

For personal use only

Financial instruments are fundamental to the Group’s business,
constituting the core element of its operations. Accordingly, the risks
associated with financial instruments are a significant componentof the risks faced by the Group. Financial instruments create, modify
or reduce the credit, market (including traded or fair value risks
and non-traded or interest and foreign currency related risks) andliquidity risks of the Group’s balance sheet. These risks and theGroup’s policies and objectives for managing such risks are outlined
below. The Group’s overall risk management programme focuseson the unpredictability of financial markets and seeks to minimise
potential adverse effects on the financial performance of the Group.
CREDIT RISK
Credit risk is the risk of financial loss from counterparties being
unable to fulfil their contractual obligations. The Group assumes
credit risk in a wide range of lending and other activities in diverse
markets and in many jurisdictions. The credit risks arise not only
from traditional lending to customers, but also from inter-bank,treasury, international trade and capital market activities aroundthe world.
The Group has an overall lending objective of sound growth forappropriate returns. The credit risk objectives of the Group are
set by the Board and are implemented and monitored withina tiered structure of delegated authority, designed to oversee
multiple facets of credit risk, including asset writing strategies,
credit policies/controls, single exposures, portfolio monitoring
and risk concentrations.
The credit risk management framework exists to provide a structured
and disciplined process to support those objectives. The integrityof the credit risk function is maintained by the independence of thecredit chain and is supported by comprehensive risk analysis, risk
tools, monitoring processes and policies.
Credit Risk Management
The credit risk management framework ensures a consistent
approach is applied across the Group in managing, maintaining
and monitoring the credit risk appetite set by the Board. In
discharging its duty to oversee credit risk, the Board is assisted
and advised by the Board Risk Committee, which oversees theeffectiveness of the operational credit controls and processes.
The Board Risk Committee sets or recommends high level changes
to credit risk appetite, credit strategies, credit principles and credit
controls, as well as approving credit transactions beyond thediscretion of executive management.
Responsibility for the day-to-day operational execution andmanagement of the credit risk framework resides with theCredit and Trading Risk Committee (CTC), which is an executive
management committee comprising senior risk, business andgroup executives, chaired by the Chief Risk Officer. CTC receives
a delegated discretion from the Board Risk Committee to set
credit policies, review divisional credit risk appetite and makecredit decisions within set limits. CTC also further delegates credit
responsibility to the broader organization, based on a combinationof factors, including size of risk, level of risk, nature of counter party,
collateral support, risk concentration limits, location of risk andexpertise of specific credit points.

116 ANZ Annual Report 2008

Experienced and specialised risk professionals manage the credit
risk framework. Skills vary greatly depending on the nature of thecredit risk being managed and range widely from statistical modelingexpertise required to build, validate and monitor retail decision
tools; to making single judgmental credit decisions in specialist
Institutional segments that require expert knowledge of not only
the specific industry, but also an understanding of the risks inherent
in complex financial instruments and structures in a time of volatileand uncertain financial markets.
The central risk function is broadly charged with the responsibilityof monitoring and assessing both counterparty and portfolio risks.
Credit risk operates in close partnership with credit originators,
but reports independently to the risk management function,
which in turn reports directly to the CEO. Although credit risk is
an independent function, responsibility for risk is firmly a shared
responsibility of both the risk and relationship functions.
Country Risk Management
Some customer credit risks involve country risk whereby actions
or events at a national or international level could disrupt servicing
of commitments. Country risk arises when payment or dischargeof an obligation will, or could, involve the flow of funds from one
country to another or involve transactions in a currency other thanthe domestic currency of the relevant country.
Country ratings are assigned to each country where ANZ incurs
country risk and have a direct bearing on ANZ’s risk appetite foreach country. The country rating is determined through a defined
methodology based around external ratings agencies’ ratings andinternal specialist opinion. It is also a key risk consideration in
ANZ’s capital pricing model for cross border flows.
The recording of country limits provides the Group with a means
to identify and control country risk. Country limits ensure that there
is a country-by-country ceiling on exposures that involve countryrisk. They are recorded by time to maturity and purpose of exposuree.g. trade, markets, project finance.
Country limits are managed centrally for the Group, through a global
country risk exposure management system managed by a specialist
unit within Institutional Risk.
Portfolio Stress Testing
Stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risk
appetite, asset writing strategies and business strategies. It creates
greater understanding of impacts on financial performance throughmodelling relationships and sensitivities between geographic,
industry and business unit exposures under a range of macro
economic scenarios.
ANZ has a dedicated stress testing team within Risk Managementthat models and reports periodically to management and the Board
Risk Committee on a range of scenarios and stress tests.

Notes to the Financial Statements
33: Financial Risk Management (continued)
Portfolio Analysis and ReportingFor personal use only

Credit portfolios are actively monitored at each layer of the risk
structure to ensure credit deterioration is quickly detected andmitigated through the implementation of remediation strategies.
All businesses incurring credit risk undertake regular andcomprehensive analysis of their credit portfolios. Issue identification
and adherence to performance benchmarks are reported to risk
and business executives through a series of reporting processes,
which include a monthly ‘asset quality’ reporting function closely
supported and overseen by the Group Risk function. This ensures
an efficient and independent conduit exists to quickly identify
and communicate emerging credit issues to Group executives
and the Board.

Collateral Management
ANZ credit principles specify to only lend what the counterparty
has the capacity and ability to repay and the Group sets limits
on the acceptable level of credit risk. Acceptance of credit risk
is firstly based on the counterparty’s assessed capacity to meet
contractual obligations, (i.e. interest and capital repayments).
Obtaining collateral is only used to mitigate credit risk. Proceduresare designed to ensure collateral is managed, legally enforceable,
conservatively valued and adequately insured where appropriate.
ANZ policy sets out the types of acceptable collateral, including:

CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers areengaged in similar business activities or activities within the samegeographic region, or when they have similar risk characteristics
that would cause their ability to meet contractual obligations tobe similarly affected by changes in economic or other conditions.
The Group monitors its portfolios, to identify and assess risk
concentrations. The Group’s strategy is to maintain well-diversified
low risk credit portfolios focused on achieving the best risk-return
balance. Credit risk portfolios are actively monitored and frequently
reviewed to identify, assess and guard against unacceptablerisk concentrations. Concentration analysis will typically include,
geography, industry, credit product and risk grade. Risk management
also applies single customer counterparty limits (SCCLs) to protect
against unacceptably large exposures to single name risk. Theselimits are established based on a combination of factors including
nature of counter party, probability of default and collateral provided.
Analysis and reporting of concentration risk is a core focus ofDivisional & Group risk functions and where appropriate the Groupapplies ‘concentration’ controls.

cash;
mortgages over property;
charges over business assets, e.g. premises, stock and debtors;
charges over financial instruments, e.g. debt securities andequities in support of trading facilities; andfinancial guarantees.

In the event of customer default, any loan security is usually held
as mortgagee in possession while the Group is actively seeking torealise it. Therefore the Group does not usually hold any real estateor other assets acquired through the enforcement of security.
ANZ uses International Swaps and Derivatives Association (ISDA)
Master Agreements to document derivatives activities. Under the
ISDA Master Agreement, if a default of counterparty occurs, allcontracts with the counterparty are terminated. They are thensettled on a net basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice is touse a CSA (Credit Support Annex to the ISDA Master Agreement).
Under a CSA, open derivative positions with the counter party are
aggregated and cash collateral is exchanged daily. The collateralis provided by the counter party that is out of the money. Upon
termination of the trade, payment is required only for the final
daily mark-to-market movement rather than the mark-to-market
movement since inception.

Financial Report 117

Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis

For personal use only

Composition of financial instruments that give rise to credit risk by industry:

Consolidated

Australia
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

New Zealand
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

Liquid assets and duefrom other financial
institutions

Trading and
AFS1 assets

Loans andadvances andacceptances

Derivatives

Otherfinancialassets2

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2007
$m

2008
$m

2007
$m

23
17
2

16
2
-

57
–
–

–
–
–

411
31
20

535
23
48

10,507
5,941
4,597

8,850
4,529
4,434

210
131
102

126
64
63

6,357
2,333
3,446

4,888
1,887
1,893

17,565
8,453
8,167

14,415
6,505
6,438

–

–

2

19

202

360

6,487

5,388

144

76

1,827

1,897

8,662

7,740

4,305

3,214 16,204 18,550 26,256 15,632

12,615

11,036

170

156

9,610

12,37969,16060,967

3,508
139
–
3
38
9
537
597

3,809
43
–
1
49
5
84
115

63
96
72
670
9,357
8,796
1 147,066 133,001
104 25,165 20,270
197
9,558
6,856
184
6,366
5,359
356
6,647
6,445
607
7,143
4,019

2
206
1,054
540
212
102
143
188

1
124
1,073
286
97
76
91
82

492
8,021
28,046
6,678
2,697
2,419
5,565
7,589

1,032
9,508
7,839
9,371 18,183 19,069
24,495 176,166 158,612
6,074 32,802 26,735
2,589 12,685
9,788
2,625
9,074
8,249
6,390 13,149 13,451
5,706 17,847 11,289

9,178

7,338 23,535 22,383 28,879 18,780 251,545 219,055

3,204

2,315

85,08081,226 401,421 351,097

2,862
65
42
–
–
–
85
760

69
316
–
391
51
160
237
735

2007
$m

Total

2008
$m

5,341
144
–
25
129
18
20
1,595

2008
$m

Credit related
commitments3

86
–
–

19
3
–

–
–
–

–
–
–

62
8
1

11
6
–

15,0871,020
774

12,401
1,008
656

118
8
6

241
20
13

3,710
249
191

3,246
258
184

19,063
1,285
972

15,918
1,295
853

–

–

23

17

6

38

892

780

7

15

218

278

1,146

1,128

2,959

4,108

1,984

1,355

4,290

2,407

1,561

2,309

12

45

376

579

11,182

10,803

155
156
–
–
299
26
19
34

37
53
–
–
59
6
103
140

209
7
–
–
–
3
–
12

131
3
–
–
–
24
–
124

232
174
–
17
11
17
9
70

29
83
–
–
31
16
5
88

549
2,680
45,552
7,832
1,755
1,186
1,583
2,315

468
2,539
42,927
6,383
1,199
828
1,118
3,376

4
21
358
61
13
9
12
13

9
49
271
124
23
16
22
66

133
648
11,285
1,919
427
288
383
426

120
636
11,724
1,681
352
279
276
406

1,282
3,686
57,195
9,829
2,505
1,529
2,006
2,870

794
3,363
54,922
8,188
1,664
1,169
1,524
4,200

3,734

4,528

2,238

1,654

4,897

2,714

82,78675,992642

914

20,25320,019 114,550 105,821

1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer related contingents.

118 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):For personal use only

Composition of financial instruments that give rise to credit risk by industry (continued):

Consolidated

Overseas Markets
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

Liquid assets and duefrom other financial
institutions

Trading and
AFS1 assets

Loans andadvances andacceptances

Derivatives

2008
$m

2007
$m

Other
financialassets2

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

–
–
–

42
7
1

–
–
56

9
–
27

90
4
8

20
1
2

2,946
1,544
141

881
442
67

55
29
3

–

–

–

2

58

13

696

550

16,927

8,500

4,546

4,102

2,634

592

1,222

4
4
–
–
–
–
28
168

146
116
–
–
131
14
227
310

1,610
38
–
23
–
82
–
63

1
407
2
12
–
2
105
40

15
113
–
18
33
31
60
101

3
25
–
4
7
7
13
23

17,131

9,494

6,418

4,709

3,165

109
17
2

77
12
1

57
–
56

9
–
27

–

–

25

38

Credit related
commitments3

2007
$m

Total

2008
$m

2007
$m

2008
$m

2007
$m

13
7
1

2,869
691
760

1,351
343
200

5,960
2,268
968

2,316
800
298

13

8

488

–

1,255

573

913

23

14

7,311

10,862

32,66324,983

297
4,793
2,379
302
444
1,553
3,052
2,280

398
3,644
1,671
422
640
230
931
1,548

6
90
65
6
8
29
57
43

6
55
121
6
10
3
14
23

1,396
11,222
387
35
278
393
7,298
2,810

–
9,471
46
590
848
326
3,457
2,346

3,328
16,260
2,831
384
763
2,088
10,495
5,465

554
13,718
1,840
1,034
1,636
582
4,747
4,290

710

21,64912,337427

281

35,93829,84084,72857,371

563
43
29

566
30
50

28,5408,505
5,512

22,132
5,979
5,157

383
168
111

380
91
77

12,936
3,273
4,397

9,485
2,488
2,277

42,58812,006
10,10732,649
8,600
7,589

266

Consolidated –aggregate
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

411

8,075

6,718

164

99

2,533

2,175

11,0639,441

24,191 15,822 22,734 24,007 33,180 18,631

15,39814,258205

215

17,297

23,820 113,005

96,75395
942
938
778 16,830 14,979
1 194,997 177,599
108 33,299 27,075
235 11,757
8,695
207
9,105
6,417
374 11,282
8,494
718 11,738
8,943

12
317
1,477
607
233
140
212
244

16
228
1,465
416
130
95
127
171

2,021
19,891
39,718
8,632
3,402
3,100
13,246
10,825

1,152 14,118
9,187
19,478 38,129 36,150
36,265 236,192 215,374
8,345 43,015 35,957
3,789 15,953 13,088
3,230 12,691 10,000
10,123 25,650 19,722
8,458 26,182 19,779

Gross total

30,043 21,360 32,191 28,746 36,941 22,204 355,980 307,384

4,273

3,510 141,271 131,085 600,699 514,289

3,667
299
–
3
337
35
584
799

3,992
212
–
1
239
25
414
565

7,160
189
–
48
129
103
20
1,670

2,994
475
44
12
–
26
190
924

316
603
–
426
95
208
306
906

1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.

Financial Report 119

Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):For personal use only

Composition of financial instruments that give rise to credit risk by industry (continued):

Consolidated

Liquid assets and duefrom other financial
institutions

Trading and
AFS1 assets

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

–

–

–

–

–

Individual provision for
credit impairment
Collective provision for
credit impairment

Loans andadvances andacceptances

Derivatives
2007
$m

Other
financialassets2

Credit related
commitments3

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

(646)

(261)

–

–

(29)

(9)

(675)

(270)

(2,062)(1,483)

–

–

(759)

(509)

(2,821)(1,992)

22,204 353,272 305,640

4,273

–
–

–

–

–

–

–

30,04321,36032,191

28,74636,941

–

–

–

–

–

–

(2,600)(2,277)

–

–

–

–

(2,600)(2,277)

–

–

–

–

–

–

600

570

–

–

–

–

600

570

30,04321,36032,191

28,74636,941

22,204 351,272 303,933

4,273

Excluded from analysis
above4

4,849

3,667

466

427

–

Net Total

34,89225,02732,657

29,17336,941

Income yet to mature
Capitalised brokerage/
mortgage origination
fees

1
2
3
4

–

–

–

22,204 351,272 303,933

4,273

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Equity instruments and cash are excluded from maximum exposure amount.

120 ANZ Annual Report 2008–

3,510 140,483 130,567 597,203 512,027

3,510 140,483 130,567 595,203 510,320
–

–

–

5,315

4,094

3,510 140,483 130,567 600,518 514,414

Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):For personal use only

Composition of financial instruments that give rise to credit risk by industry:

The Company

Australia
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

Overseas Markets
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

Liquid assets and duefrom other financial
institutions

Trading and
AFS1 assets

Derivatives

Loans andadvances andacceptances

Other
financialassets2

Credit related
commitments3

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

23
17
2

16
2
–

56
–
–

–
–
–

411
31
20

535
23
48

9,698
5,022
3,090

8,126
3,838
3,424

172
99
61

88
45
44

6,357
2,333
3,446

4,846
1,871
1,876

16,717
7,502
6,619

13,611
5,779
5,392

–

–

2

18

202

360

6,249

5,165

124

53

1,827

1,881

8,404

7,477

4,261

3,160 15,662 17,426 27,636 17,365

13,645

11,387

176

109

10,26912,27571,64961,722

3,433
136
–
3
37
9
526
583

3,700
42
–
1
47
5
82
111

63
94
72
670
9,056
8,386
1 139,854 125,065
104 24,722 19,164
197
7,331
5,567
184
4,534
4,614
356
6,407
6,005
607
7,131
3,728

2
178
868
474
146
73
123
131

1
87
1,001
201
68
53
64
58

492
8,021
28,047
6,678
2,471
2,417
5,565
6,370

1,023
9,305
7,546
9,290 17,847 18,536
24,281 168,769 150,388
6,022 32,292 25,492
2,566 10,162
8,445
2,602
7,211
7,458
6,335 12,878 12,921
5,656 16,402 10,874

9,030

7,166 22,815 21,025 30,159 20,513 236,833 204,541

2,627

1,872

84,29380,524 385,757 335,641

5,215
140
–
24
126
18
20
1,552

2,687
61
40
–
–
–
79
714

69
316
–
391
51
160
237
635

–
–
–

39
–
–

–
–
51

6
–
19

80
4
8

20
1
2

2,686
1,349
87

743
373
56

42
22
2

7
4
1

2,500
669
739

1,247
320
188

5,308
2,044
887

2,062
698
266

–

–

–

2

56

13

515

464

10

5

445

–

1,026

484

16,207

8,015

3,021

2,866

2,638

741

998

770

17

8

6,995

10,05929,87622,459

4
4
–
–
–
–
27
122

138
109
–
–
123
13
176
151

1,461
34
–
21
–
75
–
58

1
285
1
8
–
2
74
28

15
109
–
18
33
31
50
97

3
25
–
4
7
7
13
21

261
4,174
1,795
277
401
1,181
2,645
1,763

336
3,073
1,409
356
540
194
785
1,305

4
69
50
4
6
22
44
33

3
30
102
4
5
2
8
13

1,371
10,772
103
34
246
385
7,121
2,390

–
8,833
42
540
823
298
3,251
2,173

3,116
15,162
1,948
354
686
1,694
9,887
4,463

481
12,355
1,554
912
1,498
516
4,307
3,691

16,364

8,764

4,721

3,292

3,139

857

18,132

10,404325

192

33,77027,77476,451

51,283

23
17
2

55
2
–

56
–
51

6
–
19

491
35
28

555
24
50

12,384
6,371
3,177

8,869
4,211
3,480

214
121
63

95
49
45

8,857
3,002
4,185

6,093
2,191
2,064

22,025
9,546
7,506

15,673
6,477
5,658

–

–

2

20

258

The Company –aggregate
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisureand Tourism
Financial, Investment
and Insurance
Government andOfficial Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other

373

6,764

5,629

134

58

2,272

1,881

9,430

7,961

20,468 11,175 18,683 20,292 30,274 18,106

14,643

12,157193

117

17,264

22,334 101,525

84,18166355
408
695 13,230 11,459
1 141,649 126,474
108 24,999 19,520
204
7,732
6,107
191
5,715
4,808
369
9,052
6,790
628
8,894
5,033

6
247
918
478
152
95
167
164

4
117
1,103
205
73
55
72
71

1,863
18,79328,150
6,712
2,717
2,802
12,6868,760

1,023 12,421
8,027
18,123 33,009 30,891
24,323 170,717 151,942
6,562 32,646 26,404
3,389 10,848
9,943
2,900
8,905
7,974
9,586 22,765 17,228
7,829 20,865 14,565

Gross total

25,394 15,930 27,536 24,317 33,298 21,370 254,965 214,945

2,952

3,437
140
–
3
37
9
553
705

3,838
151
–
1
170
18
258
262

6,676
174
–
45
126
93
20
1,610

2,688
346
41
8
–
2
153
742

84
425
–
409
84
191
287
732

1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.

2,064 118,063 108,298 462,208 386,924

Financial Report 121

Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):For personal use only

Composition of financial instruments that give rise to credit risk by industry:

The Company

Liquid assets and duefrom other financial
institutions1

Trading and
AFS1 assets

Loans andadvances andacceptances

Derivatives

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–

–

–

–

–

–

–

–

–

–

Other
financialassets2

2008
$m

2007
$m

–

(459)

(172)

–

–

(29)

–

(1,519)(1,028)

–

–

(625)

25,394 15,930 27,536 24,317 33,298 21,370 252,987 213,745

2,952

Individual provision for
credit impairment
Collective provision for
credit impairment

Unearned income
Capitalised brokerage/
mortgage origination fees

2008
$m

2007
$m

2008
$m

Total

2007
$m

2008
$m

2007
$m

(9)

(488)

(181)

(389)

(2,144)(1,417)2,064 117,409 107,900 459,576 385,326

–

–

–

–

–

–

(508)

(348)

–

–

–

–

(508)

(348)

–

–

–

–

–

–

194

167

–

–

–

–

194

167

25,394 15,930 27,536 24,317 33,298 21,370 252,673 213,564

2,952

Excluded from analysis
above4

1,260

–

–

Net Total

26,654 16,752 27,949 24,742 33,298 21,370 252,673 213,564

2,952

1
2
3
4

Credit related
commitments3

822

413

425

–

–

–

2,064 117,409 107,900 459,262 385,145
–

–

–

1,673

1,247

2,064 117,409 107,900 460,935 386,392

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Equity instruments and cash are excluded from maximum exposure amount.

CREDIT QUALITY

Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances,
there may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the table below. Principally,
these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments which areprimarily subject to market risk, or bank notes and coins. For contingent exposures, the maximum exposure to credit risk is the maximum
amount the Group would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit risk is the fullamount of the committed facilities.
The following table presents the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial instruments before taking
account of any collateral held or other credit enhancements.

Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets

Undrawn facilities
Contingent facilities

Total

Reported

Maximum exposure
to credit risk

Excluded1

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

25,0309,862
15,17736,941
17,48016,9878,040
15,167
22,20414,006

4,849
–
20
–
446

3,667
–
47
–
380

20,181
9,862
15,15736,941
17,034

13,3208,040
15,12022,204
13,626

164,494
105,400
74,611
13,253
1,553(8,827)
4,273

147,363
82,86968,6727,300
1,740(4,529)
3,510

–
–
–
–
–
–
–

–
–
–
–
–
–
–

164,494
105,400
74,611
13,253
1,553(8,827)
4,273

147,363
82,86968,6727,300
1,740(4,529)3,510

459,247

383,329

5,315

4,094

453,932

379,235

111,265
30,006107,269
23,816––––111,265
30,006107,269
23,816141,271

131,085––

141,271

131,085

600,518

514,414

5,315

4,094

595,203

510,320

1 Includes bank notes and coins and cash at bank for liquid assets and equity instruments within trading securities and available-for-sale financial assets.

122 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

Maximum exposure to credit risk (continued)

The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets

Undrawn facilities
Contingent facilities

Total

Reported

Maximum exposure
to credit risk

Excluded1

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

18,081
8,573
12,84633,298
15,103

10,6186,134
13,35921,37011,383

1,260
–
20
–
393

822
–
45
–
380

16,821
8,573
12,82633,29814,7109,796
6,134
13,314
21,37011,003

150,376
97,599
9,127
1,553(6,636)2,952

133,296
76,5625,550
1,740(3,982)
2,064

–
–
–
–
–
–

–
–
–
–
–
–

150,376
97,599
9,127
1,553(6,636)2,952

133,296
76,5625,550
1,740(3,982)
2,064

342,872

278,094

1,673

1,247

341,199

276,847

90,02628,037

86,124
22,174––––90,02628,037

86,124
22,174

118,063108,298––

118,063108,298

460,935

386,392

1,673

1,247

459,262

385,145

1 Includes bank notes and coins and cash at bank for liquid assets and equity instruments within trading securities and available-for-sale financial assets.

A core component of the Group’s credit risk management capability is the risk grading framework used across all major Business Units andgeographic areas. A set of risk grading principles and policies are supported by a complementary risk grading methodology. Pronouncements
by the International Basel Committee on Banking Supervision have been encapsulated in these principles and policies including governance,
validation and modelling requirements.
The Group’s risk grade profile changes dynamically through new counterparty lending acquisitions and/or existing counterparty movements ineither risk or volume. All counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer andsmall business segments, and individual counterparty reviews in segments with larger single name borrowers.
ANZ uses a two-dimensional risk grading system, which measures both the customer’s ability to repay (probability of default (PD)) and theloss in the event of default (LGD) (a factor of the security taken to support the lending). ANZ also uses financial and statistical tools to assist in
the risk grading of customers. Customer risk grades are actively reviewed and monitored to ensure the risk grade accurately reflects the credit
risk of the customer and the prevailing economic conditions. Similarly, the performance of risk grading tools used in the risk grading process isreviewed regularly to ensure the tools remain statistically valid. ANZ applies a masterscale to the key outputs of the risk grading process, thePD and LGD, to consistently report on ANZ lending portfolios.

Financial Report 123

Notes to the Financial Statements
33: Financial Risk Management (continued)
Restructured items

For personal use only

The Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients with similarrisk, and those renegotiated on non-commercial terms as a result of a client’s inability to meet original contractual obligations.
In the course of restructuring facilities due to financial difficulty, the Group may consider modifying its terms to include concessions such as a
reduction in the principal amount, a deferral of repayments, and/or an extension of the maturity date materially beyond those typically offeredto new facilities with similar risk.
Restructured facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual
terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level of individual
provision is held.
Restructured loans that would otherwise be past due or impaired held by the Group are $846 million (2007: nil), and held by the Company
are $846 million (2007: nil). This represents customer facilities which for reason of financial difficulty have been re-negotiated on terms which
the Bank considers uncommercial but necessary in the circumstances and are not considered non-performing. Restructured loans includes
both on and off balance sheet exposures. The total on and off-balance sheet exposure is $823 million which includes a $23 million credit
valuation adjustment on derivative assets.
Distribution of financial instruments by credit quality
Neither past due nor
impaired

Past due but not
impaired

Restructured

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Liquid assets
20,181
Due from other financial institutions
9,862
Trading securities
15,157
Derivative financial instruments 1
36,886
Available-for-sale assets 2
17,019Net loans and advances and acceptances– Personal156,366– Institutional
101,612– New Zealand Businesses
71,539– Asia Pacific12,818– Other business units
1,516– Less: Institutional Asia Pacific(8,734)
Other financial assets
4,273
Credit related commitments 3
141,159

13,3208,040
15,12022,15913,626

–
–
–
–
–

–
–
–
–
–

–
–
–
55
–

–
–
–
–
–

–
–
–
–
15

–
–
–
45
–

20,181
9,862
15,15736,941
17,034

13,3208,040
15,12022,204
13,626

141,684
81,736
66,7617,230
1,700(4,526)
3,510
131,049

7,847
1,895
2,805
307
32
(2)
–
–

5,509
777
1,817
48
15
(2)
–
–

–
733
–
–
–
–
–
35

–
–
–
–
–
–
–
–

281
1,160
267
128
5
(91)
–
77

170
356
94
22
25
(1)
–
36

164,494 147,363
105,400 82,869
74,611 68,672
7,300
13,253
1,740
1,553(8,827) (4,529)
3,510
4,273
141,271 131,085

579,654501,40912,884

8,164

823

–

1,842

747

595,203 510,320

Consolidated

Impaired

Total

Neither past due nor
impaired

Past due but not
impaired

Restructured

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Liquid assets
16,821
Due from other financial institutions
8,573
Trading securities
12,826
Derivative financial instruments 1
33,243Available-for-sale assets 2
14,695Net loans and advances and acceptances– Personal
142,803– Institutional
93,818– Asia Pacific
8,861– Other business units
1,516– Less: Institutional Asia Pacific(6,543)
Other financial assets
2,952
Credit related commitments 3
117,956

9,796
6,134
13,314
21,325
11,003

–
–
–
–
–

–
–
–
–
–

–
–
–
55
–

–
–
–
–
–

–
–
–
–
15

–
–
–
45
–

16,821
8,573
12,82633,29814,7109,796
6,134
13,314
21,37011,003

128,12575,4505,528
1,700(3,980)2,064
108,267

7,397
1,895
162
32
(2)
–
–

5,062
761
15
15
(1)
–
–

–
733
–
–
–
–
35

–
–
–
–
–
–
–

176
1,153
104
5
(91)
–
72

109
351
7
25
(1)
–
31

150,376 133,296
97,599 76,562
9,127
5,550
1,553
1,740
(6,636) (3,982)
2,952
2,064
118,063 108,298

447,521378,726

9,484

5,852

823

–

1,434

567

459,262 385,145

The Company

Impaired

1 Derivative assets, considered impaired, net of credit valuation adjustments.
2 Impaired Available-for-sale debt security where the cumulative mark-to-market loss has been transferred from equity to the Income Statement.
3 Comprises undrawn facilities and customer contingent liabilities.

124 ANZ Annual Report 2008

Total

Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets neither past due nor impaired

For personal use only

The credit quality of financial assets is managed by ANZ using internal ratings which aim to reflect the relative ability of counterparties to fulfil,
on time, their credit-related obligations, and is based on their current probability of default.

Internal rating
Strong credit profile

Customers that have demonstrated superior stability in their operating and financial performance overthe long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events.
This rating broadly corresponds to ratings “Aaa” to “baa3” and “AAA” to “BBB-” of Moody’s and Standard& Poor respectively.

Satisfactory risk

Customers that have consistently demonstrated sound operational and financial stability over the medium
to long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating
broadly corresponds to ratings “Ba1” to “Ba3” and “BB+” to “BB-” of Moody’s and Standard & Poor
respectively.

Sub-standard but not past due
or impaired

Customers that have demonstrated some operational and financial instability, with variability anduncertainty in profitability and liquidity projected to continue over the short and possibly medium term.
This rating broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s and Standard &Poor respectively.

Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
			

The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

Strong credit profile

Satisfactory risk

Sub-standard but notpast due or impaired

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

18,526
9,146
14,30434,511
15,842

11,802
7,990
14,61920,957
12,763

1,496
578
840
1,870
1,077

1,491
38
368
821
863

159
138
13
505
100

27
12
133
381
–

20,181
9,862
15,15736,886
17,01913,3208,040
15,12022,15913,626

121,760
64,58948,642
7,815
717(6,979)4,246
110,390

110,035
55,25845,7094,487
973(3,864)
3,510
100,690

26,98633,99920,493
4,749
769(1,746)27
27,397

24,34924,62019,178
2,574
723
(657)
–
28,518

7,620
3,024
2,404
254
30
(9)
–
3,372

7,300
1,858
1,874
169
4
(5)
–
1,841

156,366 141,684
101,612 81,736
71,539 66,761
7,230
12,8181,700
1,516(8,734) (4,526)
3,510
4,273
141,159 131,049

443,509384,929

118,535 102,886

17,61013,594

579,654 501,409

Total

Strong credit profile

Satisfactory risk

Sub-standard but notpast due or impaired

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

15,423
7,884
11,97331,288
14,542

8,484
6,102
13,284
21,325
11,003

1,239
557
840
1,507
65

1,290
22
28
–
–

159
132
13
448
88

22
10
2
–
–

16,821
8,573
12,82633,243
14,695

9,796
6,134
13,314
21,325
11,003

120,486 109,687
51,90756,795
3,448
5,288
973
717
(3,359)(5,084)2,064
2,927
84,01595,026

17,73333,9993,430
769(1,455)25
20,34814,51022,212
1,950
723
(617)
–
23,164

4,584
3,024
143
30
(4)
–
2,582

3,928
1,331
130
4
(4)
–
1,088

142,803 128,125
93,818 75,450
5,528
8,861
1,700
1,516
(6,543) (3,980)
2,064
2,952
117,956 108,267

357,265

79,05763,282

11,1996,511

447,521 378,726

308,933

Total

1 Comprises undrawn facilities and customer contingent liabilities.

Financial Report 125

Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are past due but not impaired

For personal use only

Ageing analysis of past due loans financial instruments that are not impaired:

As at 30 September 2008

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances– Personal– Institutional– New Zealand Businesses– Asia Pacific2– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

				Consolidated

The Company

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

≥90
days
$m

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

≥90
days
$m

Total
$m

–

–

–

–

–

–

–

–

–

–

–

–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

1,733
335
1,018
–
10
–
–
–

4,287
624
961
240
8
–
–
–

960
138
396
–
10
–
–
–

353
538
171
42
–
–
–
–

514
260
259
25
4
(2)
–
–

7,847
1,895
2,805
307
32
(2)
–
–

1,727
336
–
–
10
–
–
–

4,060
624
–
138
8
–
–
–

828
138
–
–
10
–
–
–

293
538
–
16
–
–
–
–

489 7,397
259 1,895
–
–
162
8
32
4
(2)
(2)
–
–
–
–

3,096

6,120

1,504

1,104

1,060

12,884

2,073

4,830

976

847

758

9,484

–

–

–

–

–

–

–

–

–

–

–

–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

1,035
176
837
–
6
–
–
–

3,241
334
658
–
3
–
–
–

677
107
178
–
2
–
–
–

220
49
56
22
2
–
–
–

336
111
88
26
2
(2)
–
–

5,509
777
1,817
48
15
(2)
–
–

1,029
160
–
–
6
–
–
–

3,004
334
–
–
3
–
–
–

545
107
–
–
2
–
–
–

175
49
–
7
2
–
–
–

309
111
–
8
2
(1)
–
–

5,062
761
–
15
15
(1)
–
–

2,054

4,236

964

349

561

8,164

1,195

3,341

654

233

429

5,852

As at 30 September 2007

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific2– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

1 Comprises undrawn facilities and customer contingent liabilities.
2 For Asia Pacific in 2007, past due pools comprised 30-89 days and 90 days plus. In 2008 this was expanded to 1-29 days (shown above in the 6-29 days band).

Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due
but not impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (forexample credit cards and personal loans), those which can be held on a productive basis until they are 180 days past due and those which
are managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the fair value of associatedsecurity is sufficient to ensure that ANZ will recover the entire amount owing over the life of the facility and there is reasonable assurance
that collection efforts will result in payment of the amounts due in a timely manner.

126 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

For all lending proposals, ANZ business units assess the value of the assets being financed and judge the appropriateness of taking a security
interest in the assets being financed or other customer assets, based on the risk profile of the customer. Each security is held in favour ofthe specific ANZ entity providing the facility to which it applies. ANZ business units assess the value of assets being financed and judge theappropriateness of acquiring a security interest in either the assets being financed or over other customer assets. This is an important partin setting the credit appetite for loan amounts. Collateral provided is valued conservatively on a realistically recoverable basis assuming an
event of default. Credit policy requires that collateral be re-valued on a regular basis with the frequency varying depending on the nature of
the security. The adequacy of security valuations must also be considered at each customer review. ANZ seeks to ensure that assets of nonindividual customer entities are covered by registered mortgage debenture or equivalent charge to give ANZ access to the assets in appropriate
circumstances. ANZ extends value against types of collateral based on likely recovery rates in the event of default. Parameters for calculating
extended values are determined after analysis of historical loss information. Extended values serve as guides in the determination of potential
losses in the event of default and also in setting appetites for loan amounts.
For the purposes of this disclosure, where security is valued at more than the corresponding credit exposure, coverage is capped at the value ofthe credit exposure. Estimated value of collateral and other charges related to past due financial instruments that are past due but not impaired.

Consolidated

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

Cash and securities

Real estate

Total value ofcollateral

Other

Credit exposure

Unsecured portionof credit exposure

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–
–
–
–

–
35
–
–
–
–
–
–

6,292
243
1,765
–
1
–
–
–

4,125
179
1,039
–
4
–
–
–

693
1,020
388
–
30
–
–
–

553
543
149
–
7
–
–
–

6,985
1,263
2,153
–
31
–
–
–

4,678
757
1,188
–
11
–
–
–

7,847 5,509
777
1,895
2,805 1,817
48
307
15
32
(2)
(2)
–
–
–
–

862
632
652
307
1
(2)
–
–

831
20
629
48
4
(2)
–
–

–

35

8,301

5,347

2,131

1,252

10,432

6,634

12,884

2,452

1,530

8,164

			

The Company

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances– Personal– Institutional– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

Cash and securities

Real estate

Total value ofcollateral

Other

Credit exposure

Unsecured portionof credit exposure

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–
–
–

–
35
–
–
–
–
–

6,292
242
–
1
–
–
–

4,125
179
–
4
–
–
–

345
1,018
–
30
–
–
–

245
497
–
7
–
–
–

6,637
1,260
–
31
–
–
–

4,370
711
–
11
–
–
–

7,397
1,895
162
32
(2)
–
–

5,062
761
15
15
(1)
–
–

760
635
162
1
(2)
–
–

692
50
15
4
(1)
–
–

–

35

6,535

4,308

1,393

749

7,928

5,092

9,484

5,852

1,556

760

1 Comprises undrawn facilities and customer contingent liabilities.

Financial Report 127

Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are individually impaired

For personal use only

ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectability of a credit facility,
the financial instrument (or ‘the facility’) is classified and reported as individually impaired and an individual provision is allocated against it.
As described in the summary of significant accounting policies, provisions are recorded using allowance accounts for financial instruments thatare reported on the balance sheet at amortised cost. For instruments reported at fair value, impairment provisions are treated as part of overallchange in fair value and directly reduce the reported carrying amounts.

Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– Other business units
Other financial assets
Credit related commitments1
New ZealandLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Institutional– New Zealand Businesses
Other financial assets
Credit related commitments1

Overseas Markets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets2
Net loans and advances and acceptances– Institutional– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments
Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

Consolidated

The Company

Impaired instruments

Individual provisionbalance

Impaired instruments

Individual provisionbalance

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–
–
–
–
–

–
–
–
45
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
45
–

–
–
–
–
–

–
–
–
–
–

281
1,020
5
–
72

170
344
–
–
31

152
333
2
–
29

102
103
–
–
9

176
1,020
5
–
72

109
344
–
–
31

89
333
2
–
29

62
103
–
–
9

1,378

590

516

214

1,273

529

453

174

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

7
267
–
5

5
94
–
5

4
107
–
–

1
37
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

279

104

111

38

–

–

–

–

–
–
–
–
15

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
15

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

133
128
–
(91)
–
–

7
22
25
(1)
–
–

29
19
–
–
–
–

4
13
2
(1)
–
–

133
104
–
(91)
–
–

7
7
25
(1)
–
–

29
6
–
–
–
–

4
2
2
(1)
–
–

185

53

48

18

161

38

35

7

–
–
–
–
15

–
–
–
45
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
15

–
–
–
45
–

–
–
–
–
–

–
–
–
–
–

281
1,160
267
128
5
(91)
–
77

170
356
94
22
25
(1)
–
36

152
366
107
19
2
–
–
29

102
108
37
13
2
(1)
–
9

176
1,153
–
104
5
(91)
–
72

109
351
–
7
25
(1)
–
31

89
362
–
6
2
–
–
29

62
107
–
2
2
(1)
–
9

1,842

747

675

270

1,434

567

488

181

1 Comprises undrawn facilities and customer contingent liabilities.
2 Impaired Available-for-sale debt security where the cumulative mark-to-market loss has been transferred from equity to the Income Statement.

128 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are individually impaired (continued)

For personal use only

Estimated value of collateral and other charges related to financial assets that are individually impaired. For the purposes of this disclosure,
where security held is valued at more than the corresponding credit exposure, coverage is capped at the value of the credit exposure.

Consolidated

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances– Personal– Institutional– New Zealand Businesses– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

The Company

Liquid assets
Due from otherfinancial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances– Personal– Institutional– Asia Pacific– Other business units– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1

Cash and securities

Real estate

Total value ofcollateral

Other

Credit exposure

Unsecured portionof credit exposure

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–

–

–

–

–

–

–

–

–

–

–

–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
15

–
–
45
–

–
–
–
15

–
–
45
–

–
7
–
–
–
–
–
–

–
2
–
–
–
–
–
–

47
422
94
–
–
–
–
4

36
41
34
–
–
–
–
–

82
365
66
109
3
(91)
–
44

32
205
23
9
23
–
–
27

129
794
160
109
3
(91)
–
48

68
248
57
9
23
–
–
27

281
1,160
267
128
5
(91)
–
77

170
356
94
22
25
(1)
–
36

152
366
107
19
2
–
–
29

102
108
37
13
2
(1)
–
9

7

2

567

111

578

319

1,152

432

1,842

747

690

315

Cash and securities

Real estate

Total value ofcollateral

Other

Credit exposure

Unsecured portionof credit exposure

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–

–

–

–

–

–

–

–

–

–

–

–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
15

–
–
45
–

–
–
–
15

–
–
45
–

–
5
–
–
–
–
–

–
2
–
–
–
–
–

47
422
–
–
–
–
4

36
41
–
–
–
–
–

40
364
98
3
(91)
–
39

11
201
5
23
–
–
22

87
791
98
3
(91)
–
43

47
244
5
23
–
–
22

176
1,153
104
5
(91)
–
72

109
351
7
25
(1)
–
31

89
362
6
2
–
–
29

62
107
2
2
(1)
–
9

5

2

473

77

453

262

931

341

1,434

567

503

226

1 Comprises undrawn facilities and customer contingent liabilities.

Financial Report 129

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

Market Risk
Market risk is the risk to the Group’s earnings arising from changes
in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.
Market risk arises when changes in market rates, prices andvolatilities lead to a decline in the value of assets and liabilities,
including financial derivatives. Market risk is generated throughboth trading activities and the interest rate risk inherent in thebanking book.
ANZ conducts trading operations in interest rates, foreign exchange,commodities, securities and equities. Trading operations largely
focus on supporting customer hedging and investing activities,
rather than outright proprietary trading. Consequently, the Board
has set a medium market risk appetite for the Markets business
which is reflected in the low/moderate market risk limit framework.
ANZ has a detailed risk management and control framework to
support its trading and balance sheet activities. The framework
incorporates a risk measurement approach to quantify themagnitude of market risk within trading and balance sheet portfolios.
This approach and related analysis identifies the range of possible
outcomes that can be expected over a given period of time,
establishes the relative likelihood of those outcomes and allocatesan appropriate amount of capital to support these activities.

Market risk management and control responsibilities
To facilitate the management, measurement and reporting of market
risk, ANZ has grouped market risk into two broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial
instruments due to movements in price factors for both physical andderivative trading positions. Trading positions arise from transactions
where ANZ acts as principal with customers, financial exchanges orinterbank counterparties.
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in foreignexchange rates or their implied volatilities.
Interest rate risk is the potential loss arising from the change
in the value of a financial instrument due to changes in market
interest rates or their implied volatilities.
Credit spread risk is the potential loss arising from a change invalue of an instrument due to a movement of its margin or spread
relative to a benchmark.
Commodity risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in commodity
prices, or their implied volatilities.

Group-wide responsibility for the strategies and policies relating to
the management of market risk lies with the Board Risk Committee.
Responsibility for day to day management of both market risks
and compliance with market risk policy is delegated by the Risk
Committee to the Credit and Trading Risk Committee (‘CTC’) and
the Group Asset & Liability Committee (‘GALCO’). The CTC, chairedby the Chief Risk Officer, is responsible for traded market risk, while
the GALCO, chaired by the Chief Financial Officer, is responsible fornon-traded market risk (or balance sheet risk). All committees receive
regular reporting on the range of trading and balance sheet market
risks that ANZ incurs.

b) Non-traded market risk (or balance sheet risk)

Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units andRisk Management, with the delegation of market risk limits fromthe Board and CTC allocated to both Risk Management and theBusiness Units.

Value at Risk (VaR) measure

The management of market risk is supported by a comprehensive
limit and policy framework to control the amount of risk that theGroup will accept. Market risk limits are allocated at various levels
and are reported and monitored by Market Risk on a daily basis.
The detailed limit framework allocates individual limits to manage
and control asset classes (e.g. interest rates, equities), risk factors(e.g. interest rates, volatilities) and P&L limits (to monitor andmanage the performance of the trading portfolios).

130 ANZ Annual Report 2008

This comprises the management of non-traded interest rate risk,
liquidity, and the risk to the Australian dollar denominated valueof the Group’s capital and earnings as a result of foreign exchange
rate movements.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classified asavailable for sale financial assets that predominantly comprise longterm strategic investments.

A key measure of market risk is Value at Risk (VaR). VaR is a statisticalestimate of the possible daily loss and is based on historical market
movements.
ANZ measures VaR at a 97.5% and 99% confidence interval. Thismeans that there is a 97.5% or 99% chance that the loss will not
exceed the VaR estimate on any given day.
The Group’s standard VaR approach for both traded and non-tradedrisk is historical simulation. The Group calculates VaR using historicalchanges in market rates, prices and volatilities over the previous
500 business days. Traded and non-traded VaR is calculated using
a one-day holding period.
It should be noted that because VaR is driven by actual historicalobservations, it is not an estimate of the maximum loss that theGroup could experience from an extreme market event. As a resultof this limitation, the Group utilises a number of other risk measures(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.

Notes to the Financial Statements
33: Financial Risk Management (continued)
Traded Market Risk

For personal use only

Trading activities are typically focused on servicing customer hedging and investment requirements. The principal product classes
include foreign exchange, interest rate, debt securities, equity and commodity markets. These activities are managed along both global
and geographical product lines.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group’s product classes.
30 September 2008

30 September 2007

Consolidated

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year$m

Value at risk at 97.5% confidence
Foreign exchangeInterest rate
Credit spread
Commodity
Diversification benefit

2.4
2.8
1.2
1.3
(3.6)

2.4
3.6
2.6
1.5
n/a

0.4
1.2
0.6
0.4
n/a

0.8
1.9
1.0
1.0
(2.2)

0.7
1.6
1.0
1.0
(2.6)

1.3
7.6
1.9
1.1
n/a

0.2
1.2
0.7
–
n/a

0.6
2.6
1.2
0.2
(1.8)

Total VaR

4.1

4.7

1.4

2.5

1.7

8.1

1.4

2.8

Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit spread
Commodity
Diversification benefit

3.2
5.0
1.8
2.0
(6.1)

3.2
5.4
3.9
2.3
n/a

0.5
1.3
0.9
0.6
n/a

1.2
2.7
1.6
1.4
(3.4)

1.1
2.3
1.6
1.4
(3.7)

2.1
9.8
3.2
1.5
n/a

0.3
1.7
1.1
0.1
n/a

0.8
3.4
2.1
0.3
(2.7)

Total VaR

5.9

8.2

1.7

3.5

2.7

9.9

1.7

3.9

30 September 2008

30 September 2007

The Company

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year$m

Value at risk at 97.5% confidence
Foreign exchangeInterest rate
Credit spread
Commodity
Diversification benefit

2.4
2.3
1.2
1.3
(4.0)

2.4
3.5
2.6
1.5
n/a

0.3
0.8
0.6
0.4
n/a

0.8
1.7
1.0
1.0
(2.2)

0.7
1.5
1.0
1.0
(2.6)

1.4
7.5
1.9
1.1
n/a

0.2
1.0
0.7
–
n/a

0.4
2.4
1.2
0.2
(1.8)

Total VaR

3.2

4.7

1.4

2.3

1.6

7.2

1.1

2.4

Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit spread
Commodity
Diversification benefit

3.2
4.2
1.8
2.0
(6.4)

3.2
5.3
3.9
2.3
n/a

0.4
0.7
0.9
0.6
n/a

1.1
2.4
1.6
1.4
(3.0)

1.0
2.2
1.6
1.4
(3.6)

2.3
9.7
3.2
1.5
n/a

0.2
1.2
1.1
0.1
n/a

0.6
3.1
2.1
0.3
(2.7)

Total VaR

4.8

8.4

2.2

3.5

2.6

8.7

1.4

3.4

VaR is calculated separately for Foreign Exchange/Commodities, Interest Rate and Debt Markets, as well as for the Group. The diversification
benefit reflects the historical correlation between these products.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ ‘sstress-testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major financial market events.

Non-Traded Market Risk (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.

Financial Report 131

Notes to the Financial Statements
33: Financial Risk Management (continued)
Interest rate risk

For personal use only

The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s
future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets andliabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR Non-Traded Interest Rate Risk
The repricing assumptions used to determine the VaR and 1% rate shock have been revised to reflect the assumptions approved by APRA under
APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book. For interest rate risk modelling, assumptions are made about the interest ratesensitivity of non-bearing interest (NBI) accounts. Previously some of these accounts were profiled at zero duration, but are now profiled based on
independently validated statistical analysis where this was deemed appropriate. NBI’s without statistical evidence or justification have remainedat zero duration. Below are aggregate VaR figures covering non-traded interest rate risk.

30 September 2008

30 September 2007

Consolidated

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year$m

Value at risk at 97.5% confidence
Australia
New ZealandOverseas Markets
Diversification benefit

11.7
3.4
3.1
(2.8)

11.7
3.4
3.6
n/a

5.6
1.8
1.7
n/a

8.3
2.7
2.7
(2.9)

9.2
2.4
3.3
(3.0)

12.8
2.6
4.1
n/a

3.2
1.5
1.5
n/a

8.2
2.0
2.3
(3.1)

Total

15.4

15.4

7.9

10.8

11.9

14.9

3.4

9.4

Value at risk at 97.5% confidence
Australia
Overseas Markets
Diversification Benefit

11.7
2.6
(2.2)

11.7
3.0
n/a

5.6
1.4
n/a

8.3
2.2
(1.2)

9.2
3.0
(2.0)

12.8
3.0
n/a

3.2
1.0
n/a

8.2
1.8
(0.9)

Total

12.1

12.3

6.6

9.3

10.2

13.7

3.5

9.1

The Company

VaR is calculated separately for Australia, New Zealand and Overseas Markets, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stresstesting regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposuresof ANZ.
b) Scenario Analysis – A 1% Shock on the Next 12 Months’ Net Interest Income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial years – expressed as a percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase ispositive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase is negative for the next
12 months’ net interest income.

Impact of 1% Rate ShockAs at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)

132 ANZ Annual Report 2008

Consolidated

The Company

2008

2007

2008

2007

0.94%
0.94%
(0.55%)
0.47%(0.53%)
0.69%(0.96%)
0.38%

1.62%
1.62%
(0.74%)
0.77%(0.81%)
0.93%(1.59%)
0.59%

Notes to the Financial Statements
33: Financial Risk Management (continued)
Interest rate risk (continued)

For personal use only

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income. On a global basis, the Group quantifies the potential variation in future net interest income
as a result of these repricing mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk
between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an official rate increase
the Group does not reprice certain customer business until the first repricing date after the official rate rise.
The majority of the Group’s non-traded interest exposure exists in Australia and New Zealand. In these centres, a separate balance sheet
simulation process supplements this static gap information. This allows the net interest income outcomes of a number of different scenarios –with different market interest rate environments and future balance sheet structures – to be identified. This better enables the Group to quantify
the interest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as Available-for-sale for measurement and financial reporting purposes, also contains equity
investment holdings which predominantly comprise investments held for longer term strategic intentions. These equity investments arealso subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. Regular reviews are performed
to substantiate valuation of the investments within the portfolio and the equity investments are regularly reviewed by management for
impairment. The fair value of the constituents of equity securities classified as available for sale can fluctuate considerably.
The table below outlines the composition of the equity holdings.

Visa Inc.
Sacombank (Vietnam)
Saigon Securities Inc. (Vietnam)1
Energy Infrastructure Trust
Other equity holdings

Impact on equity of 10% variation in value

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

243
92
–
46
65

–
219
107
50
4

190
92
–
46
65

–
219
107
50
4

446

380

393

380

45

38

39

38

1 Saigon Securities Inc became an associate effective July 2008 (refer to note 39).

Foreign Currency Risk – structural exposures
The investment of capital in foreign operations, such as branches, subsidiaries or associates with functional currencies other than theAustralian dollar, exposes the Group to the risk of changes in foreign exchange rates.
The main operating (or functional) currencies of ANZ Group entities are the Australian dollar and the New Zealand dollar, with a number ofoverseas undertakings operating in various other currencies. The Group presents its consolidated financial statements in Australian dollars,as the Australian dollar is the dominant currency. The Group’s consolidated balance sheet is therefore affected by exchange differences
between the Australian dollar and functional currencies of foreign operations. Variations in the value of these overseas operations arising
as a result of exchange differences are reflected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks are managed with the primary objective of ensuring, where practical,
that the consolidated Tier 1 capital ratio is neutral to the effect of changes in exchange rates.
Selective hedges were in place during the 2008 and 2007 financial years. For details on the hedging instruments used and effectivenessof hedges of net investments in foreign operations, refer to note 12 to these financial statements.

Financial Report 133

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

LIQUIDITY Risk
Liquidity risk is the risk that the Group has insufficient capacity
to fund increases in assets, or is unable to meet its payment
obligations as they fall due, including repaying depositors or
maturing wholesale debt.
The timing mismatch of cashflows and the related liquidity risk
is inherent in all banking operations, and may be impacted frominternal and/or external events, including: credit or operationalrisks; bank-specific rumours; market disruptions; or systemic shocks.
The Group’s liquidity and funding risks are governed by a detailed
policy framework which is approved by the Board of Directors. The
management of the liquidity and funding positions and risks areoverseen by the Group Asset and Liability Committee (GALCO).
The following outlines the Group’s approach to liquidity andfunding risk management. Principles include:
Ensuring the liquidity management framework is compatible
with local regulatory requirements.
Daily liquidity reporting and scenario analysis to quantify theGroup’s positions.
Targeting wholesale and customer liability composition(via funding metrics).
Targeting a diversified funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets to protect against
adverse funding conditions and to support day-to-day operations.
Establishing detailed contingency plans to cover different liquidity
crisis events.

Supervision and Regulation
APRA supervises prudential standards for managing liquidity risk
and has adopted guidelines based on the ‘Basel Committee’ “Sound
Practices for Managing Liquidity in Banking Organisations”: APS 210– Liquidity (introduced September 2000).
APRA supervises liquidity through individual agreementswith Authorised Deposit-taking Institutions (ADIs), taking into
consideration the specific risk characteristics of each organisations
operation. APRA requires ADIs to have a comprehensive Board
approved liquidity strategy defining: policy, systems and procedures
for measuring, assessing, reporting and managing domestic andforeign currency liquidity. This must include a formal contingency
plan for dealing with a liquidity crisis.
The Group maintains an APRA Compliance Plan for APS 210 - Liquidity.
The compliance plan documents methods, processes, controls
and monitoring activities required to support compliance with theStandard and assigns responsibilities for these activities.

134 ANZ Annual Report 2008

Scenario Modelling
A key component of the Group’s liquidity management frameworkis scenario modelling. APRA requires ADIs to assess liquidity under
different scenarios, including the ‘going-concern’ and ‘name-crisis’.
	‘Going-concern’: reflects the normal behaviour of cash flows in
the ordinary course of business. APRA requires that the Group
must be able to meet all commitments and obligations under agoing concern scenario, within the ADIs normal funding capacity(‘available to fund’ limit), over at least the following 30 calendar
days. In estimating the funding requirement, the Group models
expected cashflows by reference to historical behaviour andcontractual maturity data.
To ensure that the Group has sufficient capacity to meet its goingconcern obligations, maturing wholesale funding is assessedagainst a severe capital market disruption; whereby no wholesalefunding can be issued or rolled over. As protection against thispotential funding obligation, the Group manages and monitors
wholesale borrowing requirements against both its Liquidity
Portfolio and concentration limits for both domestic and offshore
wholesale debt maturities.
‘Name-crisis’: refers to a potential name-specific liquidity crisis
which models the behaviour of cash flows where there is aproblem (real or perceived) which may include, but is not limited
to, operational issues, doubts about the solvency of the Group or
adverse rating changes. Under this scenario the Group may havesignificant difficulty rolling over or replacing funding. Under a namecrisis, APRA requires the Group to be cashflow positive over a fivebusiness day period.
The Group models name-crisis expected cashflow behaviour
based on the type of customer and their level of sophistication,and the type of asset/liability. Under name-crisis conditions,a conservative set of APRA approved assumptions are applied
over an extended eight calendar day period (to cover APRA’s fivebusiness day requirement), resulting in an accelerated outflow
of customer deposits and limited access to new wholesale funding.
As of September 2008, the Group’s position under this scenario
was cashflow positive, excluding any assumed inflows from theGroup’s internal Residential Mortgage Backed Securitisations.
The Group also models a number of other stress tests and liquidity
scenarios over a variety of time horizons, including the impact ofcredit rating downgrades, and reduced access to wholesale debt indomestic and offshore markets.
Generally, it would take an extreme event to challenge the Group’s
continued solvency. A more likely outcome is a period of tightliquidity, as has been experienced over the last 12–18 months, which
has resulted in increased funding costs. To assess these risks, theGroup models and continually monitors the probability and earnings
impact of changes in the Group’s credit margin. These changes may
be caused by general market factors and/or credit rating downgrades.

Notes to the Financial Statements
33: Financial Risk Management (continued)
Group Funding Composition

For personal use only

The Group actively uses balance sheet disciplines to prudently manage funding requirements. Also, the Group employs funding metrics toensure that an appropriate proportion of the Group’s assets are funded by stable funding sources including customer liabilities, longer-dated
wholesale debt (with a remaining term exceeding one year), and equity. This approach recognises that long-term wholesale debt and othersticky liabilities have favourable liquidity characteristics.
The table below outlines the Group’s funding composition.
Consolidated
2008
$m

2007
$m

Customer deposits and other liabilities1
Personal
Institutional
New Zealand Business
Asia PacificGroup Centre
less: Institutional Asia Pacific

74,207
79,62540,587
15,726
1,499(6,915)65,394
68,66538,333
11,101
1,807(4,071)

Total customer deposits

204,729

181,229

Other2

11,601

12,291

Total customer deposits and other liabilities (funding)

216,330

193,520

Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit (wholesale)Commercial paper
Liability for acceptances
Due to other financial institutions
Other wholesale borrowings3

67,323
14,26652,34622,422
15,297
20,092(3,532)54,075
12,78431,903
16,914
14,536
19,116
1,924

Total wholesale funding

188,214151,252

Shareholders’ equity4

25,681

21,177

18.0%
3.6%

14.5%
4.0%

6.8%
14.2%
50.3%
7.1%

8.0%
13.7%
52.9%
6.9%

100.0%

100.0%

Funding Composition

Total funding maturity
Short term wholesale funding
Liability for acceptancesLong term wholesale funding5– less than 1 year residual maturity– greater than 1 year residual maturity
Total customer deposits and other liabilities (funding)Shareholders’ equity and hybrid debt4
Total funding and shareholders’ equity4

1
2
3
4
5

Includes term deposits, other deposits excluding Collateralised Loan Obligation and securitisation deposits.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions.
Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
Shareholders’ equity excludes preference share capital.
Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short termwholesale funding.

Wholesale Funding
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
while targeting diversification by markets, investors, currencies, maturities and funding structures. To the extent that asset growth exceeds
funding generated from customer deposits, additional wholesale funds are sourced. Short-term wholesale funding requirements, with acontractual maturity of less than one year, are managed through Group Treasury and local Markets operations. Long-term wholesale fundingis managed and executed through Group Treasury operations in Australia and New Zealand.
The Group also uses maturity concentration limits and geographic diversification limits under the wholesale funding and liquidity
management framework. Maturity concentration limits ensure that the Group does not become reliant on issuing large volumes of newwholesale funding within a short time period. Funding instruments used to meet the wholesale borrowing requirement must be on apre-established list of approved products.

Financial Report 135

Notes to the Financial Statements
33: Financial Risk Management (continued)
Funding Capacity and Debt Issuance Planning

For personal use only

Senior Management (via the Group Asset and Liability Committee) are provided with and approve wholesale funding plans on a regular basis.
These plans cover targeted amounts, markets, investors, terms and currencies, for both senior, subordinated and hybrid transactions, while
recognising the need to be flexible in the current uncertain capital market environment. This plan is supplemented by a monthly forecastingprocess which reviews the funding position to-date, and where appropriate takes action and revises planned issuance volumes.
The debt issuance plan is linked to the Group’s three-year strategic planning cycle, which is a key activity assisting the Group to understandcurrent and future funding requirements, and to quantify and plan volumes of funding required.
In aggregate the Group raised $39 billion of new term wholesale debt during 2008 from 338 transactions, comprising $24 billion of debt
issued with a tenor greater than one year, an additional $9 billion of debt with an effective term to maturity of approximately one year andan additional $6 billion of extendible notes. The weighted average tenor of new term debt issued in 2008 (greater than one year) was
4.0 years. The average cost of new term debt increased by 64 basis points in 2008 as a result of credit market conditions.
Despite periods of instability in offshore short term markets, the Group was able to access all required short term funding during 2008.
Offshore commercial paper markets experienced a decline in average duration towards the end of the year. However this was offset by
ANZ’s issuance of higher volumes of one year debt than previous years, which was the result of a strategic decision to lengthen the
short-end maturity profile.
When calculating volumes of wholesale debt outstanding and the weighted average term to maturity of the term wholesale funding portfolio,
the ‘effective’ maturity of callable wholesale debt instruments is conservatively assumed to be the next call date (rather than final maturity)
as extension beyond the call date is uncertain.

Liquidity Portfolio Management
The Group holds a diversified portfolio of cash and unencumbered high-quality, highly-liquid securities that may be sold or pledged to provide
same-day liquidity. This portfolio helps protect the Group’s liquidity position by providing cash in a severely stressed environment. All assets
held in this portfolio are eligible securities for repurchase agreements with the applicable central bank (repo eligible).
The sizing of the Group’s Liquidity Portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements; potential
name crisis; or potential wholesale ‘funding stress’ requirements.
Due to increased volatility and instability in the Financial markets, from financial year end 2007 to September 2008, the Group increased
the volume of eligible securities held, post repurchase (i.e. repo) discounts applied by the applicable central bank, by approximately$14.6 billion to $34.7 billion. This includes the current market value of the $10.3 billion Australian internal mortgage securitisation (RMBS)
that was announced to the market in April 2008.
Since 30 September 2008, $20.6 billion of additional repo eligible internal mortgage securitisation has been executed (being $17.4 billion($15.7 billion post repo discount) in Australia and NZD3.5 billion (NZD $2.9 billion post repo discount) in New Zealand). Together with theimpact of the Reserve Bank of Australia’s reduction in the repo discount (initial margin) applied to internal mortgage securitisations from
19% to 10%, the balance of the prime liquid asset portfolio as at the end of September together with the subsequent internal securitisations
increased by $19.2 billion to $53.9 billion.
The table below details liquidity portfolio holdings held in the Group’s major funding centres.
2008
$m

2007
$m

Australia
New ZealandUnited States
United Kingdom
Internal RMBS (Australia)

12,899
6,620
2,739
4,157
8,305

9,281
5,474
3,070
2,251
–

Total

34,72020,076

Internal securitisations occurring in October 2008
Internal RMBS (Australia) RBA initial margin adjustment
Internal RMBS (Australia) second trancheInternal RMBS (New Zealand)2

923
15,685
2,560

Total

19,168Eligible securities (Market Values1)

53,888
1 Market value is post the repo discount applied by the applicable central bank.
2 NZD3.5 billion.

Supplementing its liquidity position, the Group holds additional cash and liquid asset balances. Also, the Markets business holds secondary
sources of liquidity in the form of highly liquid instruments in its trading portfolios. These assets are not included in the Prime Global liquidity
Portfolio’s value outlined above.
136 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)
Liquidity Crisis Contingency Planning

For personal use only

The Group maintains APRA-endorsed liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity
threatening event at a country and Group-wide basis. The framework is compliant with APRA’s key liquidity contingency crisis planningrequirements and guidelines and includes:
The establishment of crisis severity/stress levels;
Clearly assigned crisis roles and responsibilities;
Early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
Outlined action plans, and courses of action for altering asset and liability behaviour;
Procedures for crisis management reporting, and making up cash-flow shortfalls;
Guidelines determining the priority of customer relationships in the event of liquidity problems; andAssigned responsibilities for internal and external communications.

Contractual maturity analysis of the Group’s liabilities
The tables below analyses the Group’s contractual liabilities, within relevant maturity groupings based on the earliest date on which theGroup or Company may be required to pay. The amounts represent principal and interest cash flows and hence may differ compared to theamounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of financial liabilities at 30 September 2008:

Consolidated at 30 September 2008

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)– fundingReceive leg (-ve is an inflow)
Pay leg– other balance sheet management
Receive leg (-ve is an inflow)
Pay legLess than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

17,661

2,295

418

–

–

20,37429,616
66,81798,566
9,367
15,4194,836
2,031
14,4398,120
322
27,12613,99023,325
–
–
6,455
4,481
–
1,059
20,484
1,981–

11,518
1,737
–
–
1,876
1,376
–
–
43,101
10,804
–

109
111
–
–
–
–
–
–
2,331
2,997
–

–
–
–
–
–
–
–
–
–
1,075
–

55,233
91,99098,566
9,367
23,75010,693
2,031
15,49874,036
17,17927,126(20,210)
20,117(30,268)
31,357(79,793)
83,327(4,055)
4,457––(134,326)
139,258(3,563)
3,481(5,608)5,290(7,994)
8,138

(489)
455

–
–

(17,654)
17,364

1 Includes at call instruments.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.

Full mark-to-market of derivative liabilities held for trading purposes has been included in the ‘less than 3 months’ category. The undiscounted
cash flows for all derivative instruments used for the purposes of balance sheet management has been included based on the contractual
maturity of the instrument.

Financial Report 137

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

Contractual maturity analysis of financial liabilities at 30 September 2007:

Consolidated at 30 September 2007

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)– fundingReceive leg (-ve is an inflow)
Pay leg– other balance sheet management
Receive leg (-ve is an inflow)
Pay legLess than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

18,450

667

91

360

–

19,568

17,69049,971
94,088
10,143
14,726
5,065
986
14,585
4,583
175
15,774

8,416
18,328
–
–
2,717
4,467
–
593
19,186
2,704
–

7,581
4,113
–
–
–
1,134
–
–
34,614
9,737
–

8
57
–
–
–
–
–
–
1,252
1,855
–

–
–
–
–
–
–
–
–
–
690
–

33,69572,46994,088
10,143
17,443
10,666986
15,17859,635
15,161
15,774(19,671)
20,298(27,004)
30,726(52,391)
56,572(3,033)
3,404––(102,099)
111,000(1,867)
1,942(5,475)
5,018(7,585)
7,121

(206)
196

–
–

(15,133)
14,277Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

15,859

2,279

22

–

–

18,16025,97247,921
79,089
5,322
6,790
9
14,404
6,338
305
28,16812,807
14,745
–
–
1,516
–
1,059
14,311
1,930–

11,487
985
–
–
1,876
–
–
33,832
9,741
–

109
110
–
–
–
–
–
1,823
2,997
–

–
–
–
–
–
–
–
–
375
–

50,37563,761
79,0895,322
10,182
915,46356,304
15,34828,168(10,343)
10,258(17,197)
18,370(56,471)
59,352(3,722)
4,141––(87,733)
92,121(2,341)
2,269(3,145)2,900(4,892)
4,929

(453)
421

–
–

(10,831)
10,5191 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.

The Company at 30 September 2008

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liabilities for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)– fundingReceive leg (-ve is an inflow)
Pay leg– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.

138 ANZ Annual Report 2008

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

The Company at 30 September 2007

Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

More than
5 years$mNomaturity
specified2
$m

Total
$m

16,886

617

–

–

–

17,503

14,373
34,47175,606
5,562
5,390
1
14,572
4,373
175
18,425

7,769
8,205
–
–
376
–
593
15,044
2,550
–

7,554
1,810
–
–
–
–
–
26,255
8,703
–

8
56
–
–
–
–
–
1,252
1,856
–

–
–
–
–
–
–
–
–
690
–

29,70444,54275,606
5,562
5,766
1
15,16546,924
13,974
18,425(13,536)
14,077(18,878)
21,776(41,619)
44,817(3,033)
3,404––(77,066)
84,074(792)
877(2,177 )2,096(3,067)
2,853

(172)
162

–
–

(6,208)5,988

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liabilities for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)– fundingReceive leg (-ve is an inflow)
Pay leg– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.

Credit related contingencies
Undrawn facilities and issued guarantees comprises the nominal principal amounts of commitments, contingencies and other undrawn
facilities and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many ofthese facilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal
principal amounts is not necessarily representative of future liquidity risks or future cash requirements.
The tables below analyses the Group’s undrawn facilities and issued guarantees into relevant maturity groupings based on the earliest dateon which ANZ may be required to pay.

30 September 2008

Undrawn facilities
Issued guarantees

30 September 2007

Undrawn facilities
Issued guarantees

Consolidated

The Company

Less than
1 year$mMore than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

111,265
30,006––111,265
30,00690,02628,037––90,02628,037More than
1 year
$m

Total
$m

50
–

86,124
22,174

Consolidated

The Company

Less than
1 year$mMore than
1 year
$m

Total
$m

Less than
1 year$m

107,219
23,81650–

107,269
23,816

86,074
22,174The liquidity risk of credit related commitments, contingencies and other undrawn facilities may be less than the contract amount, however
the liquidity risk has been taken to be the contract amount. The amounts do not necessarily represent future cash requirements as many ofthese facilities are expected to be partially used or to expire unused.

Financial Report 139

Notes to the Financial Statements
33: Financial Risk Management (continued)

For personal use only

Operational Risk Management
Operational risks are the risks arising from day-to-day operational
activities which may result in direct or indirect loss. These losses
can result from both internal and external events and include:
failure to comply with policies, procedures, laws and regulations;failure in execution, dealing and process management;
fraud or forgery;	a breakdown in the availability or integrity of services, systems
and information; ordamage to ANZ’s reputation.

The authority for operational risk oversight is delegated by the
Board to the Board Risk Committee. The Operational Risk Executive
Committee (OREC) supports the Board Risk Committee in respectof operational risk oversight including compliance.
The key responsibilities of OREC include:	endorsing the ANZ Operational Risk Framework and approving
ANZ’s Compliance Framework and operational risk policies;	monitoring the state of operational risk management andinstigating any necessary corrective actions;	being notified of all material actual, potential or near missrisk events for review; and	approving the strategy and approach for new and emerging
risks and monitoring associated action plans.

The operational risk management process adopted by ANZ consists ofa staged approach involving establishing the context, identification,
analysis, treatment and monitoring of current, new and emerging
operational risks. This is based on the Risk Management Standard
issued by Standards Australia/New Zealand (AS/NZS 4360).
ANZ’s Operational Risk Framework is supported by a numberof operational risk policies and procedures with the effectivenessof the framework assessed through a series of assurance reviews
and processes. This is supported by an independent review programby Internal Audit.
ANZ employs the “Risk Drivers and Controls Approach” (RDCA),
underpinned by a statistical quantification model to measure thelevel of operational risk and to determine and allocate operationalrisk capital.
The RDCA is effectively a system, which:assesses the level of ANZ’s exposure to specified drivers of risk;
	assesses the scope and quality of ANZ’s internal control
environment, key operational processes and risk mitigants; anddirectly links these assessments to Operational Risk Capital.
The approach requires completion of a set of scorecards by business
units on a half yearly basis. The scorecards provide an assessmentof the ‘riskiness’ of the business unit’s activities for specificoperational risk categories.

Membership of OREC comprises senior executives and OREC
is chaired by the Chief Risk Officer.

ANZ’s business continuity and crisis management capabilities
continue to be reviewed, tested and, where necessary, strengthened
in response to new and emerging threats.

The Board delegates its authority for operational risk oversight tothe Board Risk Committee. The Operational Risk Executive Committee(OREC) reports to the Board Risk Committee and is responsible forthe management of the operational risk framework and compliancewith operational risk policy.

Business Continuity is viewed as a critical management responsibility
within the overall operational risk framework, which seeks tominimise the likelihood of a disruption to normal operations,constrain the impact were an event to occur and achieve efficientand effective recovery.

Primary responsibility for day to day management of current, newand emerging operational risks lies with ANZ divisions/Business
Units. This is supported by an independent Operational Risk function
which provides oversight, direction, the operational framework,
policies and processes.

Crisis Management planning at Group and Country levels
supplements Business Continuity Plans in the event of a broader
Group or Country crisis. Crisis Management plans include crisis
team structures, roles, responsibilities and contact lists, and are
subject to periodic testing.

ANZ’s Operational Risk Framework outlines the approach to
managing operational risk and specifically covers the core minimum
requirements that divisions/business units must undertake in the
management of operational risk.
ANZ utilises three lines of defence to manage operational and otherrisks. The first line is the business with primary responsibility forthe day-to-day ownership and management of operational risks at
ANZ. The risk management function is the second line of defence
providing oversight, direction and specialist support to the businessin their management of risks and consistent implementation of the
Operational Risk Framework. The risk management function also
provides assurance that businesses are owning and managing
their risks. The third line of defence is Internal Audit, independently
assessing the effectiveness of controls, mitigation strategies,
governance and application of policies and frameworks.

140 ANZ Annual Report 2008

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities

For personal use only

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction. The determination of the fair value of financial instruments is fundamental to the financial reporting framework as all
financial instruments are recognised initially at fair value and, with the exception of those financial instruments carried at amortised cost,
are remeasured at fair value in subsequent periods.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initialfair value may be based on other observable current market transactions in the same instrument, without modification or repackaging, oron a valuation technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, whereavailable. In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniquesthat employ observable market data. In limited cases where observable market data is not available, the input is estimated based onother observable market data, historical trends and other factors that may be relevant.

(i) Fair values of financial assets and financial liabilities
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts,
as reported on the balance sheet, and fair values of all financial assets and liabilities. The fair value disclosure does not cover those
instruments that are not considered financial instruments from an accounting perspective such as income tax and intangible assets.
In our view, the aggregate fair value amounts do not represent the underlying value of the Group.
In the tables below, financial instruments have been allocated based on their accounting treatment. The significant accounting policies
in note 1 describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including
fair value gains and losses, are recognised.
Financial asset classes have been allocated into the following groups: amortised cost; financial assets at fair value through profit or loss;
derivatives in effective hedging relationships; and available-for-sale financial assets. Similarly, each class of financial liability has been allocatedinto three groups: amortised cost; derivatives in effective hedging relationships; and financial liabilities at fair value through profit and loss.
The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to reflectchanges in market condition after the balance sheet date.
Financial Assets

Consolidated
30 September 2008

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

Consolidated
30 September 2007

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

Carrying amountAt amortisedcost

At fair value through profit or loss

Fair Value
Hedging

Available- forsale assets

Total

Total

$m

Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

$m

$m

25,0309,862–––
334,939
15,297
4,273

–
–
–
–
–
248
–
–

–
–
15,17735,237––––––
15,17735,237
–
248
–
–

–
–
–
1,704
–
–
–
–

–
–
–
–
17,480–––25,0309,862
15,17736,941
17,480335,187
15,297
4,273

25,0309,862
15,17736,941
17,480334,379
15,297
4,273

389,401

248

50,41450,662

1,704

17,480459,247

458,439

Hedging

Available- forsale assets

Total

Total

Carrying amountAt amortisedcost

At fair value through profit or loss$m

Designatedon initialrecognition$m

16,987
8,040–––
288,754
14,5363,510
331,827

Fair Value

Held forTrading$m

Sub-total
$m

$m

$m

$m

$m

–
–
–
–
–
125
–
–

–
–
15,167
20,863
–
–
–
– 

–
–
15,167
20,863
–
125
–
–

–
–
–
1,341
–
–
–
–

–
–
–
–
14,006–––

16,9878,040
15,167
22,20414,006
288,879
14,536
3,510

16,9878,040
15,167
22,20414,006288,191
14,5363,510

125

36,03036,1551,341

14,006383,329

382,641

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

Financial Report 141

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
Financial Assets (continued)

For personal use only

Carrying amountThe Company
30 September 2008

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

The Company
30 September 2007

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

At amortisedcost

At fair value through profit or loss

Fair Value
Hedging

Available-forsale assets

Total

Total

$m

Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

$m

$m

18,081
8,573–––
236,50915,262
2,952

–
–
–
–
–
248
–
–

–
–
12,84632,042––––––
12,84632,042
–
248
–
–

–
–
–
1,256
–
–
–
–

–
–
–
–
15,103–––18,081
8,573
12,84633,298
15,103
236,757
15,262
2,952

18,081
8,573
12,84633,298
15,103
236,304
15,262
2,952

281,377

248

44,88845,136

1,256

15,103342,872

342,419

Hedging

Available-forsale assets

Total

Total

Carrying amountAt amortisedcost

At fair value through profit or loss

Fair Value$m

Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

$m

$m

10,618
6,134–––
198,518
14,523
2,064

–
–
–
–
–
125
–
–

–
–
13,35920,554––––––
13,35920,554
–
125
–
–

–
–
–
816
–
–
–
–

–
–
–
–
11,383–––

10,6186,134
13,35921,37011,383
198,643
14,523
2,064

10,6186,134
13,35921,37011,383
198,360
14,523
2,064

231,857

125

33,91334,038816

11,383

278,094

277,811

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

LIQUID ASSETS AND DUE FROM/TO OTHER FINANCIAL INSTITUTIONS
The carrying values of these financial instruments where there
has been no significant change in credit risk is considered toapproximate their net fair values as they are short-term in nature,defined as those which reprice or mature in 90 days or less, or are
receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair value. Fair value is based onquoted market prices, broker or dealer price quotations, or modelledvaluations using prices for securities with similar credit risk, maturity
and yield characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are carried at fair value. Exchange
traded derivative financial instruments are valued using quoted
prices. Over-the-counter derivative financial instruments are valued
using accepted valuation models (including discounted cash
flow models) based on current market yields for similar types of
instruments and the maturity of each instrument and an adjustment
reflecting the credit worthiness of the counterparty.

AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets are carried at fair value. Fair value is basedon quoted market prices or broker or dealer price quotations. If thisinformation is not available, fair value is estimated using quoted
market prices for securities with similar credit, maturity and yieldcharacteristics, or market accepted valuation models as appropriate(including discounted cash flow models) based on current market yields
for similar types of instruments and the maturity of each instrument.
NET LOANS AND ADVANCES AND ACCEPTANCESThe carrying value of loans and advances and acceptances includes
deferred fees and expenses, and is net of provision for credit
impairment and income yet to mature.
Fair value has been determined through discounting future cash flows.
For fixed rate loans and advances and acceptances, the discount rateapplied incorporates changes in wholesale market rates, ANZ’s costof wholesale funding and movements in customer margin. For floating
rate loans, only changes in wholesale market rates and ANZ’s cost ofwholesale funding are incorporated in the discount rate. For variable
rate loans where ANZ sets the applicable rate at its discretion, the fairvalue is set equal to the carrying value.
OTHER FINANCIAL ASSETS
Included in this category are accrued interest and fees receivable.
The carrying values of accrued interest and fees receivable areconsidered to approximate their net fair values as they are shortterm in nature or are receivable on demand.

142 ANZ Annual Report 2008

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
Financial Liabilities

For personal use only

Carrying amountAt amortisedcost

At fair value through profit or loss

Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
30,418––––––30,418
10,868
–
6,396
2,242
–

–
1,509
–
–
–
–
–

20,092
31,927283,966
15,29767,323
14,266
9,537

20,092
31,927284,110
15,297
66,79414,0139,537

30,41849,924

1,509

442,408

441,770$m

Designatedon initialrecognition$mHeld forTrading$m

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

20,092–
273,098
15,29760,927
12,024
9,537––
10,868
–
6,396
2,242
–

Total financial liabilities

390,975

19,506

Consolidated
30 September 2008

Carrying amountAt amortisedcost

At fair value through profit or loss

Total

Total

Sub-total
$m

$m

$m

$m

–
23,186––––––23,186
8,135
–
4,996
2,260
–

–
994
–
–
–
–
–

19,11624,180233,743
14,53654,075
12,784
10,07919,11624,180233,697
14,53654,057
12,766
10,07923,186

38,577994

368,513368,431$m

Held forTrading$m

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

19,116–225,608
14,53649,07910,524
10,079

–
–
8,135
–
4,996
2,260
–

Total financial liabilities

328,942

15,391

Carrying amountAt amortisedcost

At fair value through profit or loss

Fair Value
Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
30,585––––––30,585
–
–
6,396
2,242
–

–
870
–
–
–
–
–

18,001
31,455203,328
15,262
52,071
12,776
7,304

18,001
31,455
203,413
15,262
51,742
12,5207,304

30,58539,223

870

340,197339,697$m

Designatedon initialrecognition$mHeld forTrading$m

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

18,001–
203,328
15,262
45,675
10,534
7,304

–
–
–
–
6,396
2,242
–

Total financial liabilities

300,104

8,638

The Company
30 September 2008

Fair Value
Hedging

Designatedon initialrecognition$mConsolidated
30 September 2007

Fair Value

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

Financial Report 143

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
Financial Liabilities (continued)

For personal use only

Carrying amountAt amortisedcost

At fair value through profit or loss

Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
24,163––––––24,163
–
–
4,996
2,260
–

–
838
–
–
–
–
–

17,24025,001
158,065
14,52343,157
11,886
8,266

17,24025,001
158,099
14,52343,157
11,886
8,266

24,16331,419838

278,138

278,172$m

Designatedon initialrecognition$mHeld forTrading$m

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

17,240–
158,065
14,52338,161
9,626
8,266

–
–
–
–
4,996
2,260
–

Total financial liabilities

245,881

7,256

The Company
30 September 2007

Fair Value

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

DEPOSITS AND OTHER BORROWINGSFor interest bearing fixed maturity deposits and other borrowings
and acceptances with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discountcontractual cash flows. The fair value of a deposit liability without aspecified maturity or at call is deemed to be the amount payable on
demand at the reporting date. The fair value is not adjusted for any
value expected to be derived from retaining the deposit for a future
period of time.
Certain deposits and other borrowings have been designated atfair value through profit or loss and are carried at fair value.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds and notes and loan capital iscalculated based on quoted market prices. For those debt issues
where quoted market prices were not available, a discounted cash
flow model using a yield curve appropriate for the remaining term
to maturity of the debt instrument is used.
Certain bonds and notes and loan capital have been designatedat fair value through profit or loss and are carried at fair value.
The fair value is based on a discounted cash flow model basedon current market yields for similar types of instruments and thematurity of each instrument. The fair value includes the effects of theappropriate credits spreads applicable to ANZ for that instrument.
PAYABLES AND OTHER FINANCIAL LIABILITIESThis category includes accrued interest and fees payable for which
the carrying amount is considered to approximate the fair value.
COMMITMENTS AND CONTINGENCIES
Adjustments to fair value for commitments and contingencies thatare not financial instruments recognised in the balance sheet, are
not included in this note.

144 ANZ Annual Report 2008(ii) Valuation methodology
A significant number of financial instruments are carried on thebalance sheet at fair value.
ANZ has implemented controls that ensure that the fair value
is either determined, or validated, by a function independentof the party that undertakes the transaction.
The best evidence of fair value is a quoted price in an active
market. Accordingly, wherever possible fair value is based onquoted market prices for the financial instrument. The net positionof non-derivative financial instruments with offsetting market risks
and all derivative portfolios, are valued at the quoted bid price forassets and the quoted ask price for liabilities. The quoted market
price is not adjusted for any potential impact that may be attributed
to a large holding of the financial instrument.
Where quoted market prices are used, independent pricedetermination or validation is utilised. The results of independentvalidation processes are reported to senior management, andadjustments to the fair values are made as appropriate.
In the event that there is no quoted market price for the instrument,
fair values are based on present value estimates or other market
accepted valuation techniques which include data from observable
markets wherever possible. The majority of valuation techniques
employ only observable market data however, for certain financial
instruments the fair value cannot be determined in whole withreference to current market transactions or valuation techniques
whose variables only include data from observable markets. In
respect of the valuation component where market observable data is
not available, the fair value is determined using valuation techniques
based on data derived and extrapolated from market data and tested
against historic transactions and observed market trends.
The valuation models incorporate the impact of the bid/ask spread,counterparty credit spreads and other factors that would influence
the fair value determined by a market participant.
For fair values determined using a valuation model, the control
framework may include, as applicable, independent development orvalidation of: (i) valuation models; (ii) any inputs to those models;and (iii) any adjustments required outside of the valuation model,
and, where possible, independent validation of model outputs.

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)

For personal use only

The table below provides an analysis of the methodology used for valuing financial assets and financial liabilities that are required to beremeasured at fair value. The fair value of the financial instrument has been allocated in full to the category which most accurately reflects
the determination of the fair value.
Valuation technique
Quoted Markets priceUsing observable inputs

With significant
non-observable inputs

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Financial Assets
Trading securities1
Derivative financial instruments2
Available-for-sale3
Loans and advances

412
2,428
2,343
–

556
1,156
3,105
–

14,61633,361
13,145248

14,48420,898
8,950
125

149
1,152
1,992
–

127
150
1,951
–

15,17736,941
17,480248

15,167
22,20414,006
125

Total

5,183

4,817

61,37044,457

3,293

2,228

69,84651,502Financial Liabilities
Derivative financial instruments2
Deposits and other borrowings
Bonds and notes
Loan capital

2,032
–
–
–

1,135
–
–
–

28,102
10,8686,396
2,242

22,887
8,135
4,996
2,260

1,793
–
–
–

158
–
–
–

31,927
10,8686,396
2,242

24,180
8,135
4,996
2,260

Total

2,032

1,135

47,60838,2781,793

158

51,43339,571

Consolidated

1 Trading securities valued using non-observable inputs relate to unquoted illiquid corporate bonds where the credit spread component of the bond value cannot be directly observedin the market.
2 Derivative financial instruments valued using non-observable inputs relate to long date instruments which extend beyond the last observable point on the curve used to model the value,
structured credit products where the data on the specific counterparties credit spreads is extremely illiquid as well as adjustments relating to the credit exposure on derivative counterparties
where the specific counterparties credit spreads are not observable.
3 Available-for-sale assets valued using non-observable inputs relates to long dated Australian CPI indexed bonds that mature after 2020 and illiquid corporate bonds where the credit spreadcomponent of the bond cannot be directly or indirectly observed in the market.

Valuation technique
Quoted Markets priceUsing observable inputs

With significant
non-observable inputs

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

Financial Assets
Trading securities1
Derivative financial instruments2
Available-for-sale3
Loans and advances

412
2,356
2,067
–

545
1,146
2,804
–

12,28529,79012,112248

12,687
20,074
7,979
125

149
1,152
924
–

127
150
600
–

12,84633,298
15,103248

13,35921,37011,383
125

Total

4,835

4,495

54,43540,8652,225

877

61,495

46,237

Financial Liabilities
Derivative financial instruments2
Bonds and notes
Loan capital

2,105
–
–

1,099
–
–

27,557
6,396
2,242

23,744
4,996
2,260

1,793
–
–

158
–
–

31,455
6,396
2,242

25,001
4,996
2,260

Total

2,105

1,099

36,19531,0001,793

158

40,09332,257The Company

1 Trading securities valued using non-observable inputs relate to unquoted illiquid corporate bonds where the credit spread component of the bond value cannot be directly observed in themarket.
2 Derivative financial instruments valued using non-observable inputs relate to long date instruments which extend beyond the last observable point on the curve used to model the value,
structured credit products where the data on the specific counterparties credit spreads is extremely illiquid as well as adjustments relating to the credit exposure on derivative counterparties
where the specific counterparties credit spreads are not observable.
3 Available-for-sale assets valued using non-observable inputs relates to long dated Australian CPI indexed bonds that mature after 2020 and illiquid corporate bonds where the credit spreadcomponent of the bond cannot be directly or indirectly observed in the market.

Financial Report 145

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)(iii) Additional information for financial instruments carried at fair value where the valuation incorporates non-observable market data
DEFERRED FAIR VALUE GAINS AND LOSSESFor personal use only

Where the fair value of a financial instrument is determined based on a valuation technique whose valuation is dependent on non-observabledata that may have a significant impact on the valuation of the instrument any difference between the transaction price and the amountdetermined based on the valuation technique (day one gain or loss) arising on initial recognition of the financial instrument is deferred on
the balance sheet. The day one gain or loss is recognised in the income statement only to the extent that it arises from a change in factors(including time) that a market participant would consider in setting the price for the instrument.
The fair value recorded in the financial statements for these instruments is the sum of:the value given by application of a valuation model, based on the best estimate of the most appropriate model inputs which market
participants would use in setting prices for the instrument;
any fair value adjustments to account for any market features not included within the valuation model (for example, bid-mid spreads,
counterparty credit spreads and/or market data uncertainty); andunamortised day one gain or loss not recognised immediately in the income statement.

The table below shows movements in the aggregate amount of day one gain(loss) not recognised in the income statement on the initialrecognition of the financial instrument because difference between the transaction price and the modelled valuation price was not fully
supported by inputs that were observable in the market.

Opening balance
Deferral of gain (loss) on new transactions
Recognised in the income statement during the period
Exchange differences

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

–
5
–
–

3
–
(3)
–

–
5
–
–

3
–
(3)
–

5

–

5

–

SENSITIVITY TO DATA INPUTSIn limited circumstances, the subsequent determination of fair value of a financial instrument is based in whole or in part using valuation
techniques based on data derived and extrapolated from data which is not observable in the market. As the valuation models for these
instruments are based upon assumptions, changing the assumptions changes the resultant estimate of fair value. The effect of changing thoseassumptions in valuation models that are not based on observable market data to reasonably possible alternative assumptions is quantified
below. The ranges of reasonably possible alternative assumptions are established by application of professional judgement to an analysis of
the data available to support each assumption.
Principal inputs used in the determination of fair value of financial instruments based on valuation techniques include data inputs such as
statistical data on delinquency rates, foreclosure rates, actual losses, counterparty credit spreads, market-quoted CDS prices, recovery rates,
implied default probabilities, market-quoted credit index tranche prices and correlation curves, some of which may not be observable in themarket. For both the Group and the Company, the potential effect of changing assumptions to reasonably possible alternative assumptions forvaluing financial instruments could result in an increase of $73 million or a decrease of $69 million in net derivative financial instruments as at
30 September 2008. In the prior period, based on conditions as of 30 September 2007, and the then existing portfolio of financial instruments
valued based on management assumptions, changes in assumptions to reasonably possible alternatives would not have a material effect on
the results of the Group or Company.

146 ANZ Annual Report 2008

Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)(iv) Additional information for financial instruments designated at fair value through profit or loss
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

For personal use only

The category loans and advances includes certain loans designated at fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative financial instruments,
which were acquired to mitigate interest rate risk of the loan and advances, are measured at fair value through profit or loss. By designating the
economically hedged loans, the movements in the fair value attributable to changes in interest rate risks, will also be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group and the Company on these assets was $248 million (2007: $125 million). Of this, $119 million(2007: $68 million) was mitigated by collateral held.
The cumulative change in fair value attributable to change in credit risk was, for the Group and the Company, a reduction to the assets of$6 million (2007: $1 million). The amount recognised in the income statement attributable to changes in credit risk was a loss of $6 million(2007: $1 million).
The change in fair value of the designated financial assets attributable to changes in credit risk has been calculated by determining the change
in credit rating and credit spread implicit in the loans and advances issued by entities with similar credit characteristics.

FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes and deposits and other borrowings have been designated as financial liabilities at fair value throughprofit or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. Thismismatch arises as the derivatives acquired to mitigate interest rate risk within the financial liabilities are measured at fair value through profit
or loss.
The table below compares the carrying amount of financial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.

Consolidated
Carrying amountAmount by which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative (gain)/loss– (gain)/loss recognised during the year
– closing cumulative (gain)/loss
Company
Carrying AmountAmount by which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative (gain)/loss in liability– (gain)/loss recognised during the year
– closing cumulative (gain)/loss

Deposits and otherborrowings

Bonds and notes

Loan Capital

2008
$m

20071
$m

2008
$m

2007
$m

2008
$m

2007
$m

10,868

8,135

6,396

4,996

2,242

2,260

(88)

(74)

(148)

2

(7)

5

–
(2)
(2)

–
–
–

(31)
(135)
(166)

(2)
(29)
(31)

12
(59)
(47)

29
(17)
12

–

–

6,396

4,996

2,242

2,260

–

–

(148)

2

(7)

5

–
–
–

–
–
–

(31)
(135)
(166)

(2)
(29)
(31)

12
(59)
(47)

29
(17)
12

1 The component of fair value gain/(loss) attributable to own credit risk for deposits and other borrowings is less than $1 million.

For each of loan capital, bonds and notes and deposits and other borrowings, the change in fair value attributable to changes in credit riskhas been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market
risks (benchmark interest rate and foreign exchange rates).

Financial Report 147

Notes to the Financial Statements
35: Maturity Analysis of Assets and Liabilities

For personal use only

The following is an analysis, by remaining contractual maturities at balance date, of selected asset and liability accounts and represents theactual obligation date expected for the asset or liability to be recovered or settled within one year, and greater than one year.
2008

2007

Consolidated

Due within
one year$m

Greater than
one year
$m

Total
$m

Due within
one year$m

Greater than
one year
$m

Total
$m

Due from other financial institutions
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances

9,230
14,407
78,25915,297632
3,073
256,928–

9,862
17,480335,187
15,297

7,434
9,338
72,46014,536606
4,668
216,419–8,040
14,006
288,879
14,536

Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Bonds and notes
Loan Capital

19,615
267,333
15,297
16,19812

477
16,633–51,125
14,25420,092283,966
15,29767,323
14,266

18,768224,259
14,536
17,696
11

348
9,484
–
36,37912,773

19,116
233,743
14,53654,075
12,784

36: Segment Analysis
For management purposes the Group is organised into four major business segments being Personal, Institutional, Asia Pacific and
New Zealand Business. An expanded description of the principal activities for each of the business segments is contained in the Glossary
on pages 188 to 190.
A summarised description of each business segment is shown below:
Personal

Provides:Rural Commercial & Agribusiness Products, Small Business Banking Products, Banking Products,
Consumer Finance, Investment and Insurance Products, Mortgages and other (including the branch
network) in Australia; andVehicle and equipment finance, rental services and fixed and at call investments.

Institutional

Provides:A full range of financial services to the Group’s business banking, corporate and institutional customers
including Corporate Finance, Business Banking, Markets and Working Capital. Institutional has a majorpresence in Australia and New Zealand and also has operations in Asia, Europe and the United States.

Asia Pacific

Provides:Personal and private banking business in Asia.
A portfolio of strategic retail partnerships in Asia.
Trade finance, relationship lending, markets and corporate finance businesses in Asia.
Retail banking services in the Pacific region.

New ZealandBusinesses

Provides:A full range of banking services for personal, small business and corporate customers in New Zealand.
Including ANZ Retail, NBNZ Retail, Corporate and Commercial Banking, Investment Insurance Products,
Private Banking, Rural Banking and Central Support.

As the composition of segments was amended during the year, September 2007 comparatives have been adjusted to be consistent with the2008 segment definitions.

148 ANZ Annual Report 2008

Notes to the Financial Statements
36: Segment Analysis (continued)
Business Segment Analysis1, 2Personal$m

Institutional$m

Asia Pacific$m

New ZealandBusinesses$mOther3$m

Less:
Institutional
Asia Pacific4$m

Consolidated
total
$m

External interest income
External interest expense
Adjust for intersegment interest

13,444(4,262)(5,758)11,753(8,002)(1,492)

1,124
(802)
158

6,668
(4,361)(663)

365(7,836)
7,684

(750)
509
71

32,604(24,754)–

Net interest income
Other external operating income
Share of net profit of equity accounted investments

3,424
1,481
–

2,259
1,074
(3)

480
413
146

1,644
487
19

213
714
199

(170)
(221)
–

7,850
3,948
361

For personal use only

Consolidated
Year ended 30 September 2008

Segment revenue

4,905

3,330

1,039

2,150

1,126

(391)

12,159Other external expenses
Net intersegment (income)/expenses(2,020)(329)(1,231)
(261)

(428)
(42)

(1,031)4(1,078)579

92
49(5,696)–

Operating expenses
Provision for credit impairment(2,349)(437)(1,492)(1,218)

(470)
(64)

(1,027)
(240)

(499)
(9)

141
20

(5,696)(1,948)Segment result

2,119

620

505

883

618

(230)

4,515

Income tax expense
Minority interests

(634)
–

(91)
(3)

(86)
(6)

(283)
–

(151)
–

57
1

(1,188)(8)

Profit after income tax attributable to shareholdersof the company

1,485

526

413

600

467

(172)

3,319

Capital expenditure

15

57

43

40

404

–

559

Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Credit risk on derivatives5
Provisions for employee entitlements
Provision for restructuring

(115)
(20)
(437)
–
(32)
(9)

(42)
(33)
(1,218)
(721)
(21)
(6)

(20)
(7)
(64)
–
(2)
(1)

(37)
(11)
(240)
–
(59)
(1)

(117)
(13)
(9)
–
(20)
(164)

1
–
20
–
–
–

(330)
(84)
(1,948)
(721)
(134)
(181)

Financial Position
Total external assets6
Share of associate and joint venture companies
Total external liabilities7
Goodwill
Intangibles

167,74416
80,738264308

207,776465
175,264
6
205

31,9772,209
30,17261
4476,125
196
67,68220
38

10,4101,639
111,170
2,713
82(23,463)(150)(20,862)––

470,569
4,375
444,1643,064
677

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes INGA, Group Centre and significant items. Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited aspart of its de-risking strategy.
4 Institutional Asia Pacific is included in both the Institutional business segment and the Asia Pacific business segment consistent with how this business is internally managed.
Segment information for Institutional Asia Pacific therefore needs to be deducted to tie back to a consolidated total for Group.
5 This charge arose from changes to the credit worthiness of counterparties to our structured credit intermediation trades, defaults on customer derivative exposures and changes
in counterparty credit ratings on the remainder of our derivatives portfolio.
6 Excludes deferred tax assets.
7 Excludes income tax liabilities.

Financial Report 149

Notes to the Financial Statements
36: Segment Analysis (continued)
business Segment Analysis1, 2
Other3$m

Less
Institutional
Asia Pacific4$m

Consolidated
total
$m

Personal$m

Institutional$m

Asia Pacific$mExternal interest income
External interest expense
Adjust for intersegment interest

10,811(3,196)(4,503)

9,062(6,396)
(682)

844
(643)
146

5,811
(3,539)(614)

212(5,491)
5,573

(530)
357
80

26,210(18,908)–

Net interest income
Other external operating income
Share of net profit of equity accounted investments

3,112
1,322
4

1,984
1,465
16

347
299
66

1,658
488
20

294
369
153

(93)
(164)
–

7,302
3,779
259

Segment revenue

4,438

3,465

712

2,166

816

(257)

11,340

Other external expenses
Net intersegment (income)/expenses(1,839)(311)(1,086)
(249)

(285)
(37)

(1,035)
(1)

(762)
561

54
37

(4,953)–Operating expenses
Provision for credit impairment(2,150)(386)(1,335)
(24)

(322)
(42)

(1,036)
(69)

(201)
(2)

91
1

(4,953)(522)

Segment result

1,902

2,106

348

1,061

613

(165)

5,865

Income tax expense
Minority interests

(571)
(1)

(621)
(3)

(73)
(4)

(341)
–

(111)
–

39
1

(1,678)(7)

Profit after income tax attributable to shareholdersof the company

1,330

1,482

271

720

502

(125)

4,180

For personal use only

Consolidated
Year ended 30 September 2007

New ZealandBusinesses$mCapital expenditure

43

26

26

36

282

–

413

Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Credit risk on derivatives5
Provisions for employee entitlements
Provision for restructuring

(124)
(19)
(386)
–
(25)
(6)

(39)
(24)
(24)
(45)
(17)
(9)

(17)
(4)
(42)
–
(1)
1

(40)
(11)
(69)
–
(56)
–

(96)
(4)
(2)
–
(22)
(9)

1
–
1
–
–
–

(315)
(62)
(522)
(45)
(121)
(23)

Financial Position
Total external assets6
Share of associate and joint venture companies
Total external liabilities7
Goodwill
Intangibles

150,403
16
72,516
264
312

157,503
177
143,628
4
141

16,998
1,557
16,67257
1170,602
181
58,509
20
22

8,370
1,499
87,7922,781
65(11,216)–(9,155)––

392,660
3,430
369,9623,126551

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes INGA, Group Centre and significant items. Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited aspart of its de-risking strategy.
4 Institutional Asia Pacific is included in both the Institutional business segment and the Asia Pacific business segment consistent with how this business is internally managed.
Segment information for Institutional Asia Pacific therefore needs to be deducted to tie back to a consolidated total for Group.
5 This charge arose from changes to the credit worthiness of counterparties to our structured credit intermediation trades, defaults on customer derivative exposures and changes
in counterparty credit ratings on the remainder of our derivatives portfolio.
6 Excludes deferred tax assets.
7 Excludes income tax liabilities.

150 ANZ Annual Report 2008

Notes to the Financial Statements
36: Segment Analysis (continued)
The following analysis details financial information by geographic location.

For personal use only

Geographic Segment Analysis1, 2
Consolidated

IncomeAustralia
New ZealandOverseas Markets

2008

2007

$m

%

$m

%

25,033
9,110
2,770

68%
25%
7%

20,134
8,092
2,021

66%
27%
7%

36,913100%

30,247100%

321,705
100,270
48,594

69%
21%
10%

272,968
91,19328,49970%23%
7%

470,569100%

392,660

100%

460
40
59

82%
7%
11%

326
36
51

79%
9%
12%

559

100%

413

100%

Total assets3

Australia
New ZealandOverseas Markets
Capital Expenditure
Australia
New ZealandOverseas Markets

1 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
2 The geographic segments represent the locations in which the transaction was booked.
3 Excludes deferred tax assets.

Financial Report 151

Notes to the Financial Statements
37: Notes to the Cash Flow Statements
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Operating profit after income tax attributable to shareholders of the Company

3,319

4,180

3,336

3,551

Adjustments to reconcile operating profit after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Credit risk on derivatives
Depreciation and amortisation
Profit on sale of businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit)/loss on sale of premises and equipment(Profit)/loss on sale of available-for-sale assets
Amortisation of discounts/premiums included in interest income
Net foreign exchange earnings
Net gains/losses on trading derivatives
Share based payments

1,948
721
330
(2)
584
(402)
(32)
(361)
(176)
(708)
(344)
14

522
45
315
(234)
336
(307)
(33)
(14)
(80)
(518)
(405)
7

1,573
718
259
(4)
418
(230)
(4)
(281)
2
(340)
(164)
14

344
45
242
(39)
286
(247)
4
(4)
–
(531)
(126)
7

Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks greater than three months
Loans and advances
Net derivative financial instruments
Net intra-group loans and advances
Regulatory deposits
Interest receivable
Accrued income
Net tax assets

31(4,692)(739)(46,855)(1,628)
–
(232)
(248)
40
(1,282)(5,913)(1,642)(410)(36,943)(2,154)
–
(54)
(56)
(23)
(203)

501
(3,620)(674)(38,446)
(796)
2,222
(134)
(277)
22
(1,416)(5,846)(1,865)(195)(27,606)(963)(10,305)
(31)
(3)
(38)
(565)

Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other

49,796976(1,189)
754
115
(180)

33,964
4,326
23
367
23
(180)

43,503761(2,513)560
86(2,159)34,585
3,050
(11)
206
25
383

Total adjustments(3,761)(9,241)(419)(9,198)(442)(5,061)

2,917(5,647)For personal use onlya) Reconciliation of net profit after income tax to net cash provided
by operating activities

Net cash (used in)/provided by operating activitiesb) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than threemonths. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in thestatements of financial position as follows:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Liquid assets – less than three months (refer note 9)
Due from other financial institutions – less than three months (refer note 10)15,645
7,842

12,307
6,767

10,133
7,023

6,701
5,339

Cash and cash equivalents in the statement of cashflows

23,487

19,074

17,156

12,040152 ANZ Annual Report 2008

Notes to the Financial Statements
37: Notes to the Cash Flow Statements (continued)c) Acquisitions and disposals

For personal use only

Consolidated

Cash outflows from acquisitions and investments
Purchases of controlled entities (note 17)
Investments in controlled entities
Purchases of interest in associates and joint ventures

Cash inflows from disposals
Disposals of controlled entities (note 17)
Disposals of associates and joint ventures

The Company

2008
$m

2007
$m

2008
$m

2007
$m

10
–
440

203
–
1,247

6
62
223

177
6
366

450

1,450

291

549

81
47

377
67

81
32

–
67

128

444

113

67

2,506

442

2,506

442

d) Non-cash financing and investing activities
Share capital issues
Dividend reinvestment planse) Financing arrangements

Credit standby arrangements
Standby Lines
Other financing arrangements
Overdraft and other financing arrangements
Total finance available

2008

Consolidated

2007

Available$m

Unused$m

Available$m

Unused
$m

1,419

1,419

1,134

1,134

–

–

–

–

1,419

1,419

1,134

1,134

Financial Report 153

Notes to the Financial Statements
38: Controlled Entities
Incorporated in

Nature of Business

Australia

Banking

American Samoa
Australia
Australia
Australia
Australia
Australia
Australia
Australia
EnglandSamoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Kiribati
Australia
EnglandEngland
Australia
Australia
Australia
Australia
Papua New Guinea
Guam
Guam
Australia
Australia
Australia
Indonesia
Laos

Banking
Investment Banking
Funding
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Investment
Banking
Banking
Holding Company
Banking
Fund Manager
FinanceFinanceFinance
Holding Company
Investment
FinanceFinanceFinance
NomineeFinance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Banking
Holding Company
Holding Company
Finance
Investment
Mortgage Insurance
Nominee
Holding Company
Banking
Holding Company
Banking
General Finance
Online Stockbroking
Securitisation
Banking
Banking

Ultimate parent of the GroupFor personal use only

Australia and New Zealand Banking Group Limited
All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:Amerika Samoa Bank*ANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZcover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Samoa) Limited*
ANZ Holdings (New Zealand) Limited*		
ANZ National Bank Limited*			
ANZ Investment Services (New Zealand) Limited*			
ANZ National (Int’l) Limited*			
Arawata Finance Limited*				
Arawata Trust*			Arawata Holdings Limited*				Harcourt Corporation Limited*			
Arawata Trust Company*
			Endeavour Finance Limited*				
Tui Endeavour Limited*			
Private Nominees Limited*			
UDC Finance Limited*
ANZ International (Hong Kong) Limited*		
ANZ Asia Limited*		
ANZ Bank (Vanuatu) Limited*
ANZ International Private Limited*		
ANZ Singapore Limited*
ANZ Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
Minerva Holdings Limited*		
Upspring Limited*
Votraint No. 1103 Pty Limited
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Nominees Limited
ANZ Orchard Investments Pty Ltd
Australia and New Zealand Banking Group (PNG) Limited*
Citizens Bancorp Inc*
Citizens Security Bank (Guam) Inc*
Esanda Finance Corporation Limited
ETRADE Australia Limited
Omeros II Trust1
PT ANZ Panin Bank*1
ANZ Vientiane Commercial Bank Limited*1* Audited by overseas KPMG firms.
1 Minority interests hold ordinary shares or units in the controlled entities listed above as follows: Bank of Kiribati Ltd – 150,000 $1 ordinary shares (25%) (2007: 150,000 $1 ordinary
shares (25%)); PT ANZ Panin Bank – 7,500 IDR 1 million shares (15%) (2007: 7,500 IDR 1 million shares (15%)); ANZ Royal Bank (Cambodia) Limited – 189,000 USD100 ordinary shares(35%) (2007: 180,000 USD100 ordinary shares (45%)); ANZ Vientiane Commercial Bank Limited – 4,000,000 $1 ordinary shares (40%) (2007: 4,000,000 $1 ordinary shares (40%));
Omeros II Trust – residual capital unitholder (2007: residual capital unitholder).

154 ANZ Annual Report 2008

Notes to the Financial Statements
39: Associates

For personal use only

Significant associates of the Group are as follows:

AMMB Holdings Berhad1
P.T. Bank Pan Indonesia
Shanghai Rural Commercial Bank

Date Ownership
becameinterest
an associate
held

May 2007
April 2001
September 2007

19%
30%
20%

June 2006

20%

Votinginterest

Incorporatedin

Carrying
value
$m
2008

Carrying
value
$m
2007

999
406
403
218

Fair
value3$m

Reportingdate

Principal
activity

804
252
307

7686
31 March
747 31 December
n/a 31 December

Banking
Banking
Banking164

n/aBanking

July 2008

18%

19%4
Malaysia
30%
Indonesia
20% Peoples Republicof China
20% Peoples Republicof China
18%
Vietnam150

n/a1066 31 December Stockbroking

Diversified Infrastructure Trust5

March 2008

54%

54%

Australia

100

n/a

n/a 30 September

Cards NZ Limited2
Metrobank Card Corporation Inc
Other associates

August 2002
October 2003

15%
40%

25%
40%

New ZealandPhilippines

72
30
230

–
28
194

n/a
n/a

2,608

1,749

Bank of Tianjin
Saigon Securities Inc.1

Total carrying value of associates

31 December

Investment

30 September Cards Services
31 December Cards Issuing

1
2
3
4

Significant influence was established via representation on the Board of Directors.
Equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ Limited, on Visa shares in New Zealand.
Applicable to those investments in associates where there are published price quotations.
The investment in AMMB Holdings Berhad comprises ordinary shares and bonds exchangeable into ordinary shares. The terms of the exchangeable bonds allow ANZ to convert the exchangeable bonds
into ordinary shares at any time within the 10 year period to maturity. Currently held ordinary shares provide ANZ a voting interest of 19%. The other instruments could increase ANZ’s voting interest andownership interest up to 25%, when converted or exchanged in full. An increase above 20% would require regulatory approval.
5 ANZ has significant influence but not control over this entity (refer note 17 for further details).
6 A value-in-use estimation supports the carrying value of these investments.
2008
2007
$m
$m

Aggregate assets of significant associates (100%)
Aggregate liabilities of significant associates (100%)
Aggregate revenue of significant associates (100%)

88,92981,561
5,239

64,64960,081
4,737

Consolidated
2008
$m

2007
$m

Share of associates profit before income tax
Share of income tax expense

282
(57)

131
(37)

Share of associates net profit – as disclosed by associates
Adjustments– withholding tax– provisioning– release of acquisition fair value adjustments– other

225

94

(1)
(21)
16
(1)

(4)
(2)
–
(1)

Share of associates net profit accounted for using the equity method

218

87

Results of Associates

40: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
Ownership
interest
held

Votinginterest
held

Incorporatedin

Carrying
value6$m

Reportingdates

Principal
activity

ING Australia Limited1, 5

49%2

49%

Australia

1,589

31 December

ING (NZ) Holdings Limited3,5

49% 4

50%

New Zealand178

31 December

Funds Management
and Insurance
Funds Management
and Insurance

Total interests in Joint Venture entities

1,767

1 A joint venture entity from 1 May 2002.
2 This represents the Group’s 49% share of the assets and liabilities of ING Australia Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:n ING Australia Limited is owned 51% by ING Group and 49% by ANZ.
n Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval).
		 These include major items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
n Equal board representation with four Group nominees and four ING Group nominees. All key issues (including business plans, major capital expenditure, acquisitions etc) require unanimous
Board approval.
n Refer to Critical Estimates and Judgements used in Applying Accounting Policies item (ii) for details regarding valuation of investment in ING Australia Limited.
The Joint Venture includes the majority of the Group’s and ING’s funds management and insurance activities in Australia.
3 A joint venture entity from 30 September 2005.
4 This represents the Group’s 49% share of assets and liabilities of ING (NZ) Holdings Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:n ING (NZ) Holdings Limited is owned 51% by ING Group and 49% by ANZ.
n Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval). These include major		 items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
n Equal board representation with four Group nominees and four ING Group nominees. All key decisions (including business plans, major capital expenditure, acquisitions etc) require		 unanimous Board approval.
n Refer to Critical Estimates and Judgements used in Applying Accounting Policies item (iii) for details regarding valuation of investment in ING (NZ) Holdings Limited
The joint venture includes the majority of the Group’s and ING’s funds management and insurance activities in New Zealand.
5 ING Australia Limited and ING (NZ) Holdings Limited have different reporting dates than the Consolidated Group to align with the ING Group parent entity.
6 2007 carrying values as follows: ING Australia Limited $1,519 million; and ING (NZ) Holdings Limited $162 million.

Financial Report 155

Notes to the Financial Statements
40: Interests in Joint Venture Entities (continued)
ING (NZ) Holdings
Limited

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

313
410

256
313

39
58

19
39

352
468

275
352

Movement in the carrying amount of the joint venture entity
Carrying amount at the commencement of the year
Share of net profit
Dividend received
Movement in reserves
Adjustment for exchange rate fluctuations

1,519
124
(27)
(27)
–

1,462
152
(95)
–
–

162
19
–
–
(3)

146
20
–
–
(4)

1,681
143
(27)
(27)
(3)

1,608
172
(95)
–
(4)

Carrying amount at the end of the year

1,589

1,519

178

162

1,767

1,681

Investments
Other assets

12,4982,340

14,712
1,817

65
134

70
137

12,5632,474

14,782
1,954

Share of total assets

14,838

16,529199

207

15,037

16,736

Policy holder liabilities
Other liabilities

13,311516

14,881
698

(3)
9

19
9

13,308525

14,900707

Share of total liabilities

13,827

15,5796

28

13,833

15,607

Share of net assets

1,011

950

193

179

1,204

1,129

Share of revenues, expenses and results
Revenues
Expenses

396
(230)

433
(233)

77
(63)

69
(49)

473
(293)

502
(282)

Profit before income tax

166

200

14

20

180

220

Income tax expense

(42)

(48)

5

–

(37)

(48)

Profit after income tax

124

152

19

20

143

172

Net equity accounted profit

124

152

19

20

143

172

Share of commitments
Lease commitments
Other commitments

141
51

150
19

7
–

3
–

148
51

153
19

Share of total expenditure commitments

192

169

7

3

199

172

Share of contingent liabilities
In relation to ANZ’s interest in the joint venture entity2

27

27

–

–

27

27

27

27

–

–

27

27

For personal use only

ING Australia Limited

Retained profits attributable to the joint venture entity
At the beginning of the year
At the end of the year

Consolidated
Total

Share of assets and liabilities1

1 This represents the Group’s share of the assets and liabilities of ING Australia Limited and ING (NZ) Holdings Limited, less minority interests and including goodwill on acquisition of ANZ Funds
Management entities.
2 This represents Deeds of Subordination with ASIC and buyer of last resort.

156 ANZ Annual Report 2008

Notes to the Financial Statements
41: Securitisations
ANZ enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to special
purpose entities. These transfers may give rise to the full or partial derecognition of those financial assets.

For personal use only

Full derecognition occurs when ANZ transfers its contractual right to receive cash flows from the financial assets, or retains the rightbut assumes an obligation to pass on the cash flows from the asset, and transfers substantially all the risks and rewards of ownership.
These risks include credit, interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when ANZ sells or otherwise transfers financial assets in such a way that some but not substantially all of
the risks and rewards of ownership are transferred but control is retained. These financial assets are recognised on the balance sheet
to the extent of ANZ’s continuing involvement.

The following table summarises ANZ’s securitisation activities for ANZ-originated assets. The 2008 securitisation activity relates to an internal
residential mortgage securitisation creating instruments eligible for repurchase arrangements with the Reserve Bank of Australia.
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

Carrying amount of assets securitised (sold) during year
Net cash proceeds received
Retained interests

–
–
–

–
–
–

11,229–(11,229)–––

Gain/(loss) on securitisation/sale (pre-tax)

–

–

–

–

ANZ-originated financial assets that do not qualify for derecognition typically relate to loans that have been securitised under arrangements
by which ANZ retains a continuing involvement in the transferred assets. Continuing involvement may entail: retaining the rights to future
cash flows arising from the assets after investors have received their contractual terms providing subordinated interests; liquidity support;
continuing to service the underlying asset; or entering into derivative transactions with the securitisation vehicles. In such instances, ANZ
continues to be exposed to risks associated with these transactions.
The rights and obligations that ANZ retains from its continuing involvement in securitisations are initially recorded as an allocation of the fairvalue of the financial asset between the portion that is derecognised and the portion that continues to be recognised on the date of transfer.
The carrying amount of ANZ-originated financial assets that did not achieve derecognition during the year are set out below:

Securitisations

Carrying amount of assets (original)
Carrying amount of assets (currently recognised)
Carrying amount of associated liabilities

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

–
–
–

–
–
–

11,22910,36010,360–––Additional information in relation to securitisation exposures is included in Financial Information section 4 (unaudited disclosures).

42: Fiduciary Activities
The Group conducts various fiduciary activities as follows:

Investment fiduciary activities for trusts
The Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as
the Group does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation isincurred in an agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assetsof the applicable funds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or
its controlled entities will be required to settle the liabilities, the liabilities are not included in the financial statements.

Financial Report 157

Notes to the Financial Statements
42: Fiduciary Activities (continued)
The aggregate amounts of funds concerned are as follows:

For personal use only

Consolidated

Trusteeships

2008
$m

2007
$m

2,338

2,651

Funds management activities
Funds management activities are conducted through the ING Australia Limited and ING (NZ) Holdings Limited joint ventures and certain
subsidiaries of the Group. As stated in note 1A(vii), shares in joint venture entities are stated in the consolidated balance sheet at cost plus
the Group’s share of post acquisition earnings. Funds under management on behalf of customers are not consolidated because these funds
invest in specified investments on behalf of clients.
The Group controlled or jointly controlled fund management companies with funds under management as follows:

ING Australia Limited Joint Venture
ING (NZ) Holdings Limited Joint Venture
Controlled entities – New ZealandControlled entities – Australia

2008
$m

2007
$m

42,507
6,764
4,908
1,365

49,461
7,220
3,895
798

55,544

61,374

Custodian services activities
Custodian services are conducted through ANZ Custodian Services. ANZ Custodian Services holds investment assets under custody on behalfof external customers and as a consequence the assets are not consolidated in the Group’s accounts. As at 30 September 2008, ANZ CustodianServices had funds under custody and administration of $143.2 billion (30 September 2007: $148.2 billion).

43: Commitments

Property
Contracts for construction of new office building in Docklands area, Melbourne Australia
Not later than 1 year
Later than one year but not later than 5 years
Acquisitions
Not later than 1 year
Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year

Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

375
9

171
212

375
9

171
212

6

9

–

9

53

101

22

83

Total capital expenditure commitments1

443

493

406

475

Lease rentals
Land and buildings
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

271
597
362

232
512
384

197
437
340

159
373
356

1,230

1,128

974

888

37
47
–

29
29
–

25
35
–

16
16
–

84

58

60

32

Total lease rental commitments

1,314

1,186

1,034

920

Total commitments

1,757

1,679

1,440

1,395

Furniture and equipment
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

1 Relates to premises and equipment.

158 ANZ Annual Report 2008

Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS Guarantees AND CONTINGENT LIABILITIESCredit related commitments

For personal use only

Facilities provided
Consolidated

The Company

2008
Contract
amount$m

2007
Contract
amount$m

2008
Contract
amount$m

2007
Contract
amount$m

Undrawn facilities1

111,265

107,269

90,026

86,124Australia
New ZealandOverseas Markets

71,911
18,81820,536

70,692
18,765
17,812

71,109–18,917

69,999–16,125

Total

111,265

107,269

90,026

86,124

1 The credit risk of the undrawn facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount. The majority of undrawn facilities are subject
to customers maintaining specific credit standards. The amount does not necessarily represent future cash requirements as many of these facilities are expected to be partially used or to
expire unused.

Guarantees and contingent liabilities
Details of the estimated maximum amount of guarantees and contingent liabilities that may become payable are disclosed on the following
pages. These guarantees and contingent liabilities relate to transactions that the Group has entered into as principal. Financial guarantees
are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails
to make payment when due in accordance with the original or modified terms of a debt instrument.
Standby letters of credit are obligations on the part of the Group to pay to third parties when customers fail to make payments when due.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfil the
non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateralrequirements for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if thecounterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.
Consolidated

The Company

2008
Contract
amount$m

2007
Contract
amount$m

2008
Contract
amount$m

2007
Contract
amount$m

Financial Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingencies
Other

6,679
1,651
10
4,957
15,568
1,141

5,410
1,476
28
3,238
12,671
993

6,442
1,617
10
4,744
14,518
706

5,194
1,474
28
3,080
12,091
307

Total

30,006

23,81628,037

22,174Australia
New ZealandOverseas Markets

13,1701,435
15,401

10,535
1,253
12,02813,184–
14,853

10,525–
11,649Total

30,006

23,81628,037

22,174

Financial Report 159

Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
other bank related contingent liabilities

For personal use only

GeneralThere are outstanding court proceedings, claims and possible claims
against the Group, the aggregate amount of which cannot readily
be quantified. Appropriate legal advice has been obtained and,in the light of such advice, provisions as deemed necessary havebeen made. In some instances we have not disclosed the estimatedfinancial impact as this may prejudice the interests of the Group.

i) Opes Prime Stockbroking Limited
ANZ entered into Master Securities Lending Agreements (AMSLAs)
with Opes Prime and a related company on 26 July 2006. Under
the AMSLAs, ANZ acquired shares in various companies listed on
the ASX. On 20 March 2008, there was a reorganisation of security
arrangements between Opes Prime and ANZ. On 27 March 2008,
ANZ appointed a receiver and manager to Opes Prime and relatedcompanies.
In relation to Opes Prime:
There are outstanding court proceedings and claims against ANZ
including a class action on behalf of some clients of Opes Prime.
ASIC is conducting an investigation into Opes Prime generally.
As part of that investigation, ASIC and ANZ have had extensive
correspondence concerning Opes Prime. ASIC has raised concerns
about disclosure requirements in respect of interests in entities(arising under transactions entered into pursuant to the AMSLAs)
and various pother potential breaches of the Corporations Act.
From investigations to date, ANZ believes it has in all material
respects acted in accordance with the applicable laws.
It has been suggested that the reorganisation of security
arrangements between Opes Prime and ANZ might be challenged
under the Corporations Act by the liquidators of Opes Prime. Ina Notice to Creditors of Opes Prime issued on 6 October 2008,
the liquidators valued these potential claims in the region of$205 million to $270 million and also flagged potential claims
against another financier, Merrill Lynch. They also pointed out
to the creditors that there would be complexities, risks andconsiderable time periods involved, if these potential claims
were to be pursued by litigation.

ANZ and Merrill Lynch have engaged in a mediation process with theliquidators and ASIC.
There are ongoing developments concerning the events surrounding
Opes Prime which may continue for some time. There is a risk thatfurther actions (court proceedings or regulatory actions) may becommenced against various parties, including ANZ. The potential
impact or outcome of future claims (if any) cannot presently beascertained. ANZ would review and defend any claim, as appropriate.

ii) Contingent tax liability
The Australian Taxation Office (ATO) is reviewing the taxation
treatment of certain transactions, including structured financetransactions, undertaken by the Group in the course of normal
business activities. Some assessments have been received which
are being challenged in the normal manner.

The Inland Revenue Department (IRD) in New Zealand is reviewing
a number of conduit-relieved structured finance transactions aspart of normal revenue authority audit procedures. This is part ofan industry-wide review by the IRD of these transactions undertaken
in New Zealand. The IRD has issued Notices of Proposed Adjustment(the ‘Notices’) in respect of some of those structured financetransactions. The Notices are not tax assessments and do notestablish a tax liability, but are the first step in a formal dispute
process. In addition, the IRD has issued some tax assessments asa follow up to the Notices in some cases. Should the same position
be adopted by the IRD on the remaining transactions of that kindas reflected in the Notices and in the tax assessments received,
the maximum potential tax liability would be approximately NZD541
million (including interest tax effected) for the period to 30 September
2008. Of that maximum potential liability, approximately NZD151
million is subject to tax indemnities provided by Lloyds TSB Bank
PLC under the agreement by which ANZ acquired the National Bankof New Zealand and which relate to transactions undertaken by the
National Bank of New Zealand before December 2003. All of these
conduit-relieved transactions have now either matured or been
terminated.
Other audits or risk reviews are being undertaken by the ATO,
the IRD and by revenue authorities in other jurisdictions as partof normal revenue authority activity in those countries.
The Company has assessed these and other taxation claims
arising in Australia, New Zealand and elsewhere, including seeking
independent advice where appropriate, and considers that it holds
appropriate provisions.

iii) Interbank deposit agreement
ANZ has entered into an Interbank Deposit Agreement with the majorbanks in the payments system. This agreement is a payment system
support facility certified by the Australian Prudential Regulation
Authority, where the terms are such that if any bank is experiencing
liquidity problems, the other participants are required to deposit
equal amounts of up to $2 billion for a period of 30 days. At the endof 30 days the deposit holder has the option to repay the deposit incash or by way of assignment of mortgages to the value of the deposit.

iv) Nominee activities
The Group will indemnify each customer of controlled entities
engaged in nominee activities against loss suffered by reason ofsuch entities failing to perform any obligation undertaken by them
to a customer (refer note 42).

v) Clearing and settlement obligations
In accordance with the clearing and settlement arrangements set out:in the Australian Payments Clearing Association Limited
Regulations for the Australian Paper Clearing System, the Bulk
Electronic Clearing System, the Consumer Electronic Clearing
System and the High Value Clearing System (HVCS), the Company
has a commitment to comply with rules which could result in abilateral exposure and loss in the event of a failure to settle bya member institution; andin the Austraclear System Regulations and the CLS BankInternational Rules, the Company has a commitment to participate
in loss-sharing arrangements in the event of a failure to settle by amember institution.
For HVCS and Austraclear, the obligation arises only in limited
circumstances.

160 ANZ Annual Report 2008

Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)vi) Deed of Cross Guarantee in respect of certain controlled entities

For personal use only

Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual financial statements. The results of thesecompanies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1ANZ Capital Hedging Pty Ltd1
Alliance Holdings Pty Ltd1

1
2
3
4

ANZ Orchard Investments Pty Ltd2ANZ Securities (Holdings) Limited3
ANZ Commodity Trading Pty Ltd4ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2

Relief originally granted on 21 August 2001.
Relief originally granted on 13 August 2002.
Relief originally granted on 9 September 2003.
Relief originally granted on 11 August 2008.

It is a condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deed of
Cross Guarantee under the class order was executed by them and lodged with the Australian Securities and Investments Commission. The Deedof Cross Guarantee is dated 1 March 2006. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in
the event of winding up any of the controlled entities under certain provisions of the Corporations Act 2001. If a winding up occurs, the Company
will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar
guarantees in the event that the Company is wound up. The consolidated income statement and consolidated balance sheet of the Company
and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:Consolidated
2008
$m

2007
$m

Profit before tax
Income tax expense

3,950
(679)

4,835
(916)

Profit after income tax
Retained profits at start of year1
Adjustment on adoption of AASB 2005-1

3,271
10,105
–

3,919
8,240
141

Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(losses) on defined benefit plans after tax

13,376(2,506)–(60)

12,300(2,363)–75

Retained profits at end of year

10,81010,012

AssetsLiquid assets
Available-for-sale assets
Net loans and advances
Other assets
Premises and equipment

18,081
15,103
236,772
107,542
1,043

10,618
11,383
198,610
78,242802

Total assets

378,541

299,655

Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions

203,328253
150,461
908

161,195
669
117,992
710

Total liabilities

354,950

280,566

Net assets

23,591

19,089

Shareholders’ equity2

23,591

19,0891 The companies included in the class order changed in 2008. Accordingly, retained profits did not carry forward in 2008.
2 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

Financial Report 161

Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)vii) New Zealand Commerce Commission

For personal use only

In November 2006, the New Zealand Commerce Commission broughtproceedings under the Commerce Act 1986 against Visa, MasterCard
and all New Zealand issuers of Visa and MasterCard credit cards,
including ANZ National Bank Limited. The Commission alleges pricefixing and substantially lessening competition in relation to thesetting of credit card interchange fees and is seeking penalties andorders under the Commerce Act.
Subsequently, several major New Zealand retailers have issued
proceedings against ANZ National Bank and the other above
mentioned defendants seeking unquantified damages, based onallegations similar to those contained in the Commerce Commission
proceedings. ANZ National Bank is defending the proceedings. At
this stage, the risks and any potential liabilities cannot be assessed.
The court has now allocated a ten week fixture for the proceedings
beginning in October 2009.

viii) Trade Sanctions
On 1 February 2007, following a review of its compliance with UnitedStates (US) economic sanctions and discussions with US regulators,
the Group announced that it had curtailed financial transactions
with US sanctioned countries and had taken further action toensure compliance with US sanction regulations. A small numberof transactions, 42 in total, involved parties from US sanctioned
countries. The Group has made voluntary disclosures to US financial
regulators and remains in discussion with US regulators regarding
the transactions. The Group has also briefed Australian and New
Zealand regulators. The US sanctions regime includes the possibilityof fines. Based on current knowledge, it is difficult to predict the levelof fines. Nonetheless, the Group considers that it holds appropriate
provisions for these issues.

ix) ING New Zealand Funds
ANZ markets and distributes a range of wealth management products
in New Zealand which are managed by ING (NZ) Limited (of which
ANZ holds 49%). Trading in the New Zealand ING Diversified Yield
fund and the ING Regular Income Fund was suspended on 13 March
2008 by the fund manager, ING (NZ) Limited, due to the deteriorationin liquidity in credit markets. The matter is being reviewed by both
ANZ and ING (NZ) and it is too early to assess the nature or quantumof any potential liability.

x) Sale of Grindlays businesses
On 31 July 2000, ANZ completed the sale to Standard Chartered
Bank (SCB) of ANZ Grindlays Bank Limited and the private banking
business of ANZ in the United Kingdom and Jersey, together withANZ Grindlays (Jersey) Holdings Limited and its subsidiaries,
for USD1.3 billion in cash. ANZ provided warranties and certain
indemnities relating to those businesses and, where it was
anticipated that payments would be likely under the warranties
or indemnities, made provisions to cover the anticipated liability.
The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within theprovisions established at the time.
FERA
In 1991 certain amounts were transferred from non-convertible
Indian Rupee accounts maintained with Grindlays in India. Thesetransactions may not have complied with the provisions of theForeign Exchange Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to the attention of the Reserve
Bank of India.

162 ANZ Annual Report 2008

The Indian authorities served notices on Grindlays and certain of
its officers in India and civil penalties have been imposed which
are the subject of appeals. Criminal prosecutions are pending andwill be defended. The amounts in issue are not material.
Tax Indemnity
ANZ provided an indemnity relating to tax liabilities of Grindlays(and its subsidiaries) and the Jersey Sub-Group to the extent towhich such liabilities were not provided for in the Grindlays accounts
as at 31 July 2000. Claims have been made under this indemnity,with no material impact on the Group expected.

xi) Underpinning agreement – ANZ National Bank Limited
The Company is party to an underpinning agreement with ANZ
National Bank Limited whereby the Company undertakes to assume
risk in relation to credit facilities extended by ANZ National Bank
Limited to individual customers which exceed 35% of ANZ National
Bank Limited’s capital base.

xii) Underpinning agreement – Australia and New Zealand Banking
Group (PNG) Limited
The Company is party to an underpinning agreement with Australia
and New Zealand Banking Group (PNG) Limited whereby theCompany undertakes to assume risk in relation to credit facilities
extended by Australia and New Zealand Banking Group (PNG)
Limited to individual customers which exceed 25% of Australia
and New Zealand Banking Group (PNG) Limited’s capital base.
Contingent assets

National Housing Bank
In 1992, Grindlays received a claim aggregating to approximately
Indian Rupees 5.06 billion from the National Housing Bank (NHB)
in India. The claim arose out of cheques drawn by NHB in favour of
Grindlays, the proceeds of which were credited to the account of a
Grindlays customer.
Grindlays won an arbitration award in March 1997, under which
NHB paid Grindlays an award of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special Court of Mumbai, after
which Grindlays filed an appeal with the Supreme Court of India.
Grindlays paid the disputed money including interest into court.
Ultimately, the parties settled the matter and agreed to share themonies paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates),with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million
at 19 January 2002 exchange rates) of the disputed monies.
ANZ in turn received a payment of USD 124 million (USD equivalentof the Indian Rupees received by Grindlays) from Standard Chartered
Bank under the terms of an indemnity given in connection withthe sale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respectof the above.
In addition, ANZ is entitled to share with NHB in the proceeds ofany recovery from the estate of the customer whose account wascredited with the cheques drawn from NHB. However, the Indian
Taxation Department is claiming a statutory priority to all of the funds
available for distribution to creditors of that customer. The Special
Court passed an order in late 2007 scaling down the Income Taxation
Department’s priority, however, that order has been appealed by
the Income Taxation Department to the Supreme Court of India.
The appeal was heard in late August 2008 and a decision by theSupreme Court of India is now pending.

Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes
Description of the Group’s post employment benefit schemes

For personal use only

The Group has established a number of pension, superannuation and post retirement medical benefit schemes throughout the world.
The Group may be obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability
is dependent on the terms of the legislation and trust deeds.
The major schemes with assets in excess of $25m are:Contribution levels

Country

SchemeScheme type

Employee/participant

Employer

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined contribution scheme
Section C3 or

Optional8

Balance of cost10

Defined contribution scheme
Section A or

Optional

9% of salary11

Defined benefit scheme
Pension Section4

Nil

Balance of cost12

Defined benefit scheme5 or

Nil

Balance of cost13

Defined contribution scheme

Minimum of
2.5% of salary

7.5% of salary14

Defined benefit scheme6 or

5.0% of salary

Balance of cost15

Defined contribution scheme7

Minimum of
2.0% salary

11.5% of salary16

Defined benefit scheme7

5.0% of salary9

Balance of cost17

New ZealandUK

ANZ National Bank Staff
Superannuation Scheme(formerly ANZ Group(New Zealand) Staff
Superannuation Scheme)1,2

National Bank Staff
Superannuation Fund1,2

ANZ UK Staff
Pension Scheme1

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of theschemes’ assets.
1 These schemes provide for pension benefits.
2 These schemes provide for lump sum benefits.
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9 From 1 October 2003, all member contributions are at a rate of 5% of salary.
10 As determined by the Trustee on the recommendation of the actuary – currently 9% (2007: 9%) of members’ salaries.
11 2007: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – currently nil (2007: nil).
13 As recommended by the actuary – currently nil (2007: nil).
14 2007: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2007: 24.8%) of members’ salaries.
16 2007: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2007: 26%) of pensionable salaries and additional quarterly contributions of GBP 3.5 million
until December 2015.

Financial Report 163

Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
Funding and contribution information for the defined benefit sections of the schemes

For personal use only

The funding and contribution information for the defined benefit sections of the schemes as extracted from the schemes’ most recent financial
reports are set out below.
In this financial report, the net (liability)/asset arising from the defined benefit obligation recognised in the balance sheet has been determinedin accordance with AASB 119 “Employee Benefits”. However, the excess or deficit of the net market value of assets over accrued benefits
shown below has been determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’. The excess or deficit for funding
purposes below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date and basis
to those used for AASB 119 purposes.
Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m2008 Schemes

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefits Scheme3
ANZ National Bank Staff Superannuation Scheme1
National Bank Staff Superannuation Fund2
Other4,5

35
1,083
12
5
164
7

33
959
–
5
159
5

(2)
(124)
(12)
–
(5)
(2)

Total

1,306

1,161

(145)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2008), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1 Amounts were measured at 31 December 2007.
2 Amounts were measured at 31 March 2007.
3 Amounts were measured at 30 September 2008.
4 Amounts were measured at 30 September 2007.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

2007 Schemes

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme4
ANZ National Bank Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other4, 5

36
1,134
15
6
168
7

35
967
–
6
163
5

(1)
(167)
(15)
–
(5)
(2)

Total

1,366

1,176

(190)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119 the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2007), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1 Amounts were measured at 31 December 2004.
2 Amounts were measured at 31 December 2006.
3 Amounts were measured at 31 March 2007.
4 Amounts were measured at 30 September 2007.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

Employer contributions to the defined benefit schemes are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of various matters such as future investment performance, interest rates, salary increases,
mortality rates and turnover levels. The funding methods adopted by the actuaries are intended to ensure that the benefit entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $40 million to the defined benefit sections of the schemes during the next financial year.

164 ANZ Annual Report 2008

Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
The current contribution recommendations for the major defined sections of the schemes are described below.

For personal use only

ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted byconsulting actuaries Russell Employee Benefits as at 31 December 2007 showed a deficit of $2 million and the actuary recommended thatGroup contributions to the Pension Section remain suspended. The next full actuarial valuation is due to be conducted as at 31 December
2010, at which time the funding position will be reassessed.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate

8% p.a.
3% p.a.

The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the deficit.

ANZ UK Staff Pension Scheme
A full actuarial valuation, conducted by consulting actuaries Watson Wyatt LLP, as at 31 December 2007 showed a deficit of GBP 55 million($124 million at 30 September 2008 exchange rates).
Following the actuarial valuation as at 31 December 2007, the Group agreed to make regular contributions at the rate of 26% of pensionablesalaries. These contributions are sufficient to cover the cost of accruing benefits. To address the deficit, the Group agreed to continue to
pay additional quarterly contributions of GBP 3.5 million until 31 December 2015. These contributions will be reviewed at the next actuarial
valuation which is scheduled to be undertaken as at 31 December 2009.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases

5.8% p.a.
7.2% p.a.
5.2% p.a.
3.4% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arisein the event that the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions
under the UK Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.
A net liability representing the defined benefit obligation calculated under AASB 119 is recognised on the balance sheet. The basis of
calculation under AASB 119 is detailed in note 1F(vi), and on page 164.

National Bank Staff Superannuation FundA full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at
31 March 2007 showed a deficit of NZD6 million ($5 million at 30 September 2008 exchange rates). The actuary recommended that theGroup make contributions of 24.8% of salaries in respect of members of the defined benefit section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases

5.5% p.a.
3.0% p.a.
2.5% p.a.

The Group has no present liability under the Fund’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise in
the event that the Fund was wound up. Under the Fund’s Trust Deed, if the Fund were wound up, the Group is required to pay the Trustees of
the Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Groupintends to continue the Fund on an on-going basis.
A net liability representing the defined benefit obligation calculated under AASB 119 is recognised on the balance sheet. The basis of
calculation under AASB 119 is detailed in note 1F(vi), and on page 164.

Financial Report 165

Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)

For personal use only

The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in thebalance sheet under AASB 119 for the defined benefit sections of the schemes:
Consolidated

The Company

2008
$m

2007
$m

2008
$m

2007
$m

10
70
(77)
–
2

14
71
(77)
1
2

8
60
(68)
–
–

11
61
(67)
1
–

5

11

–

6

(1,160)1,006(1,267)
1,199(1,003)871(1,112)
1,037

Present value of net obligation

(154)

(68)

(132)

(75)

Amounts recognised in the balance sheet
Other assets (refer note 20)
Payables and other liabilities (refer note 24)

–
(154)

7
(75)

–
(132)

–
(75)

Present value of net obligation

(154)

(68)

(132)

(75)

Amounts recognised in equity in respect of defined benefit schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings

112
48

(107)
(64)

84
28

(104)
(56)

Amount recognised in income in respect of defined benefit schemes
Current service cost
Interest cost
Expected return on assets
Past service cost
Adjustment for contributions tax
Total included in personnel expenses (refer note 4)
Amounts included in the balance sheet in respect of its defined benefit schemes
Present value of funded defined benefit obligation
Fair value of scheme assets

The Group has a legal liability to fund deficits in the schemes, but no legal right to use any surplus in the schemes to further its own interests.
The Group has no present liability to settle deficits with an immediate contribution. For more information about the Group’s legal liability to funddeficits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defined benefit obligation in the relevant period
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Past service cost
Exchange differences on foreign schemes
Benefits paid

1,267
10
70
1
(83)
–
(35)
(70)

1,462
14
72
1
(101)
1
(111)
(71)

1,112
8
60
–
(93)
–
(32)
(52)

1,296
11
62
–
(92)
1
(108)
(58)

Closing defined benefit obligation

1,160

1,267

1,003

1,112

Movements in the fair value of scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange differences on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefits paid

1,199
77
(195)
(45)
39
1
(70)

1,238
77
6
(92)
40
1
(71)

1,037
68
(177)
(42)
37
–
(52)

1,067
67
12
(89)
38
–
(58)

Closing fair value of scheme assets1

1,006

1,199

871

1,037

Actual return on scheme assets

(118)

82

(109)

79

1 Scheme assets include the following financial instruments issued by the Group: Cash and short term debt instruments $59.1 million (September 2007: $4.8 million), fixed interest securities$1.0 million ( September 2007: $1.0 million) and equities $0.3 million (September 2007: $0.2 million).

166 ANZ Annual Report 2008

Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
The Company
Fair value of scheme
assets

2008
%

2007
%

2008
%

2007
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other

32
37
11
20

48
33
13
6

30
34
13
23

48
30
15
7

Total assets

100

100

100

100

2008
%

2007
%

5.25
7.00
7.20
6.04
6.04

6.25
5.90
6.00
6.50
6.50

8.50
7.40
n/a
4.50
5.50

8.50
7.00
n/a
4.50
5.50

5.50
3.00

5.15
3.00

3.00
3.70
2.50
2.50

3.00
3.35
2.50
2.50

11.00

10.00

6.00

5.50

For personal use only

Consolidated
Fair value of scheme
assets

Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short term
ANZ UK Health Benefits Scheme
Future medical cost trend – long term
ANZ UK Health Benefits Scheme

To determine the expected returns of each of the asset classes held by the relevant scheme, the directors assessed historical return trends andmarket expectations for the asset classes. The overall expected rate of return on assets for each scheme is determined as the weighted averageof the expected returns for the asset classes.
Assumed medical cost trend rates do not have a material effect on the amounts recognised as income or included in the balance sheet.

History of experience adjustments
Defined benefit obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

Consolidated

The Company

2008
$m

2007
$m

2006
$m

2005
$m

2008
$m

2007
$m

2006
$m

2005
$m

(1,160)1,006(1,267)
1,199(1,462)
1,238(1,246)
1,099(1,003)871(1,112)
1,037(1,296)
1,067(1,076)
922

(154)
12
(195)

(68)
9
6

(224)
7
48

(147)
(6)
100

(132)
8
(177)

(75)
10
12

(229)
5
44

(154)
(7)
90

Information for 2004 is not available.

Financial Report 167

Notes to the Financial Statements
46: Employee Share and Option Plans

For personal use only

ANZ operates a number of employee share and option schemes
under the ANZ Employee Share Acquisition Plan and the ANZ Share
Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP) schemes thatexisted during the 2007 and 2008 financial years were the$1,000 Share Plan, the Restricted Share Plan, the Deferred SharePlan, Performance Shares and the Employee Share Save Scheme(ESSS). Note the ESSS is an employee salary sacrifice plan and is
not captured as a share based payment expense.

$1,000 share plan
Each permanent employee (excluding senior executives) who has
had continuous service for one year is eligible to participate in the$1,000 scheme enabling the grant of up to $1,000 of ANZ sharesin each financial year, subject to approval of the Board. At a dateapproved by the Board, the shares will be granted to all eligible
employees using the 1 week weighted average price of ANZ shares
traded on the ASX in the week leading up to and including the dateof grant.
In Australia and most overseas locations, ANZ ordinary sharesare granted to eligible employees for nil consideration and vest
immediately when granted, as there is no forfeiture provision.
It is a requirement, however, that shares are held in trust for three
years from the date of grant, after which time they may remain intrust, be transferred to the employee’s name or sold. In general,dividends received on the shares are automatically reinvested
into the Dividend Reinvestment Plan.
Shares granted to eligible New Zealand employees under thisplan vest subject to the satisfaction of a three year service period,
after which time they may remain in trust, be transferred into theemployee’s name or sold. At the time of transfer, employees are
required to pay NZD 1 cent per share. Shares may be forfeited in
the event of dismissal for serious misconduct or resignation.
Dividends are received as cash.
During the 2008 year, 926,878 shares with an issue price of$28.24 were granted under the plan to employees on 13 December
2007 (2007 year: 901,374 shares with an issue price of $27.97
were granted on 4 December 2006 and a further 2,958 ANZ shareswith an issue price of $29.37 were granted under the plan to
ETRADE Australia Limited employees on 22 June 2007 following
the ANZ acquisition).

Deferred share plan
Selected employees may also be granted long-term incentive (LTI)
deferred shares which vest to the employee up to three years fromthe date of grant. Ordinary shares granted under this LTI plan may
be held in trust beyond the deferral period. Unvested LTI deferredshares are forfeited on resignation, dismissal for serious misconduct
or termination on notice. In the event of death or total and permanent
disablement, all shares will be released to the employee in full.

168 ANZ Annual Report 2008

Short-term incentive (STI) three year deferred shares were granted
under a historical ANZ STI program, and may be held in trust beyond
the deferral period. The last grant of three year STI deferred shares
was made on 11 May 2004 (with the vesting date being 11 May
2007). There were no 3 year STI deferred share grants in the 2007
or 2008 financial years. STI deferred shares with a two year deferral
period were granted under a business unit specific incentive plan
(primarily as a retention tool), and may be held in trust beyond thedeferral period. A new STI deferral program will be implemented for2009 bonuses, with equity deferral relating to 50% of amounts abovea specified threshold. For Management Board members, mandatory
STI equity deferral commenced in 2008 (rather than 2009), withexpensing to begin in the 2009 financial year due to the 31 October
2008 grant date. Refer to page 26 of the Remuneration Report for
details. Unvested STI deferred shares (granted prior to 2008) areforfeited on resignation or dismissal for serious misconduct.
In exceptional circumstances, sign-on deferred shares are granted
to certain employees upon commencement with ANZ to compensate
for equity foregone from their previous employer.
The vesting period generally aligns with the remaining vesting periodof equity forgone, and therefore varies between grants. Retention
three year deferred shares may also be granted occasionally to highperforming employees who are regarded as a significant retention
risk to ANZ. Sign-on and retention deferred shares will be forfeitedon resignation, dismissal for serious misconduct or termination on
notice. In the event of death or total and permanent disablement,
all shares will be released to the employee in full.
The employee receives all dividends on deferred shares while heldin trust (cash or dividend reinvestment plan). The issue price fordeferred shares is based on the volume weighted average price ofthe shares traded on the ASX in the week leading up to and including
the date of grant.
During the 2008 year, 2,445,372 deferred shares with a weighted
average grant price of $28.26 were granted under the deferred shareplan (2007 year:1,275,132 shares with a weighted average grantprice of $29.13 were granted).

Restricted share plan
Eligible employees may elect a pre-tax sacrifice of part or all of
their annual cash bonus for ANZ shares. The shares are subject
to a 12 month restriction period, however, they may be left in trust
beyond the restriction period. The shares are subject to forfeiture
on dismissal for serious misconduct. The shares are released tothe employee on termination for any other reason. The employee
receives all dividends on these restricted shares (cash or dividend
reinvestment plan). The issue price is based on the volume weighted
average price of the shares traded on the ASX on the week leading
up to and including the date of grant.
During the 2008 year, 354,384 shares with an issue price of $29.95
were granted under the Restricted Share Plan (2007 year: 339,269
shares with an issue price of $29.04 were granted).

Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
Performance share plan

For personal use only

Performance shares are essentially LTI deferred shares with aperformance hurdle. They were granted to i) a small number of
US based employees on 7 November 2005 to accommodate local
taxation laws, and ii) to former CEO, J McFarlane on 31 December
2004. ANZ agreed to acquire J McFarlane’s interest in the 175,000
Performance Shares on his departure. Refer to page 31 of theRemuneration Report for further details.
Based on the conditions of grant, the proportion of performance
shares that vest will depend upon the Total Shareholder Return(TSR) achieved by ANZ relative to a comparator group of major
financial services companies. Performance equal to the median
TSR of the comparator group will result in half the performance
shares vesting. Vesting will increase on a straight-line basis until
all of the performance shares vest where ANZ TSR is at or above
the 75th percentile of TSRs in the comparator group. Where ANZ’s
performance falls between two of the comparators, TSR is measured
on a pro-rata basis.

Share valuations
The fair value of shares granted in the 2008 year under the $1,000
share plan, the Deferred Share Plan and the Restricted Share Plan,
measured as at the date of grant of the shares, is $105.3 million
based on 3,726,634 shares at a weighted average price of $28.26(2007 year: fair value of shares granted is $72.7 million based on
2,518,733 shares at a weighted average price of $28.88). The volume
weighted average share price of all ANZ shares sold on the ASX on
the date of grant is used to calculate the fair value of shares. No
dividends are incorporated into the measurement of the fair valueof shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options/rights, which entitle
them to purchase ordinary fully paid shares in ANZ at a price fixedat the time the options/rights are granted. Voting and dividend rights
will be attached to the unissued ordinary shares when the options/rights have been exercised.

Each option/right entitles the holder to one ordinary share subject
to the terms and conditions imposed on grant. The exercise price ofthe options, determined in accordance with the rules of the plan, is
generally based on the weighted average price of the shares tradedon the ASX in the week leading up to and including the date of grant.
For rights, the exercise price is nil.

ANZ Share Option Plan schemes expensed in the 2007 and 2008
years are as follows:

Current Option Plans
Performance rights plan (excl. CEO performance rights)
Performance rights are granted to certain employees as partof ANZ’s long-term incentive (LTI) program. The first grant of
performance rights was in November 2005, and provides the rightto acquire ANZ shares at nil cost, subject to a three-year vesting
period and a Total Shareholder Return (TSR) performance hurdle.
The proportion of LTI performance rights that become exercisable
will depend upon the TSR achieved by ANZ relative to a comparatorgroup of major financial services companies, measured over thesame period (since grant) and calculated at the third anniversaryof grant. Performance equal to the median TSR of the comparatorgroup will result in half the performance rights becoming exercisable.
Vesting will increase on a straight-line basis until all of theperformance rights become exercisable where ANZ TSR is at or above
the 75th percentile of TSRs in the comparator group. Where ANZ’s
performance falls between two of the comparators, TSR is measured
on a pro-rata basis. The performance hurdle will only be tested onceat the end of the three year vesting period. If the performance rights
do not pass the hurdle on the testing date, or they are not exercisedby the end of the exercise period (5 years from the date of grant),
they will lapse. In the case of dismissal for serious misconduct,
all unexercised performance rights will be forfeited. In the case of
resignation or termination on notice, only performance rights that
become exercisable (and pass the performance hurdle) by the endof the notice period may be exercised. In the case of death or total
and permanent disablement, all performance rights are available
for exercise (with the performance hurdle waived).
CEO Performance rights
CEO M Smith’s LTI (as approved by shareholders at the 2007
Annual General Meeting), consists of 3 tranches of performancerights, each to a maximum value of $3 million. The performance
periods for each tranche begin on the date of grant of 19 December
2007 and end on the 3rd, 4th and 5th anniversaries respectively(i.e. only one performance measurement for each tranche). The levelof vesting for each tranche will be based on ANZ Total Shareholder
Return (TSR) performance against a comparator group of companies
consistent with the performance rights plan. Each tranche has a
1 year exercise period. In the case of resignation or dismissal forserious misconduct, all unexercised performance rights will be
forfeited. In the case of termination on notice, only performancerights that become exercisable (and pass the performance hurdle)
by the end of the notice period may be exercised. In the case ofdeath or total and permanent disablement, all performance rights
are available for exercise (with the performance hurdle waived).

Financial Report 169

Notes to the Financial Statements
46: Employee Share and Option Plans (continued)

For personal use only

Deferred share rights (No performance hurdles)
Deferred share rights are granted instead of deferred shares toaccommodate off-shore taxation implications. They provide theright to acquire ANZ shares at nil cost after a specified vesting
period. The fair value of rights is adjusted for the absence ofdividends during the restriction period.
Treatment of rights in respect of cessation relates to the purposeof the grant (refer to Deferred Share Plan and Restricted SharePlan sections).

Legacy Option Plans
The following legacy plans are no longer being offered to Group
employees, but were expensed during the 2007 and 2008 years.
Performance option plan (No performance hurdle applies)
Performance options were granted to certain employees (below
executive levels) as part of a historical LTI program, with 7 November
2005 being the last grant of LTI performance options. The options
can only be exercised after a three-year vesting period and before
the seventh anniversary of the grant date. There are no performance
conditions attached to these options as they were primarily granted
as a retention tool. All unexercised options are forfeited on dismissal
for serious misconduct, resignation and termination on notice. On
death or total and permanent disablement, all unvested options will
become available for exercise.
Deferred share rights (No performance hurdle)
Special deferred share rights were granted to a small number of
New Zealand employees in December 2004. They provide the right toacquire ANZ shares at nil cost after a three year vesting period. Rights
must be exercised by the seventh anniversary of the grant date. They
may be forfeited at the Company’s discretion if the employee ceases
employment for any reason. The fair value of rights is adjusted for theabsence of dividends during the restriction period.
Hurdled options
Hurdled options were granted to certain employees as part of ahistorical LTI program. The options can only be exercised subject
to the satisfaction of time and performance based hurdles. Options
may be exercised during the four year period commencing three
years, and ending seven years after the grant date, subject tomeeting the relevant performance hurdle. The performance hurdle
will be measured during the exercise period by comparing ANZ’s
Total Shareholder Return (ANZ’s TSR) against the comparator group
relevant to the hurdled option grant.
Hurdled options granted in November 2004 will be tested against acomparator group consisting of major financial services companies,
excluding ANZ. The options become exercisable depending on ANZ’sranking within the comparator group.

170 ANZ Annual Report 2008

ANZ must rank at the 50th percentile for 50% of the options tobecome exercisable. For each 1% increase above the 50th percentile
an additional 2% of options will become exercisable, with 100%
being exercisable where ANZ ranks at or above the 75th percentile.
This will be calculated as at the last trading day of any month (oncethe exercise period has commenced).
Other hurdled option grants will be measured against the S&P/
ASX 200 Banks Accumulation Index, and the S&P/ASX 100
Accumulation Index. Half the options may only be exercised once
ANZ’s TSR exceeds the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index, measured over thesame period (since grant) and calculated as at the last trading dayof any month (once the exercise period has commenced); and theother half of hurdled options may only be exercised once the ANZ TSR
exceeds the percentage change in the S&P/ASX 100 Accumulation
Index, measured over the same period (since grant) and calculated
as at the last trading day of any month (once the exercise period
has commenced). The forfeiture provisions are the same as theperformance option plan.
Options granted to former CEO, J McFarlane
Of the options granted to former CEO J McFarlane, only the balanceof the 31 December 2004 grant was expensed during the 2007
financial year (with all other grants expensed during previous
reporting periods). This option grant may be exercised subject to thefollowing: one half of the options may be exercised only if the ANZ
TSR calculated over the period commencing on the date of grant andending on the last day of any month after the second anniversaryof the date of grant, exceeds the percentage change in the S&P/
ASX 200 Banks (Industry Group) Accumulation Index over that same
period; and the other half of the options may be exercised only if the
ANZ TSR calculated over the relevant period exceeds the percentagechange in the S&P/ASX 100 Accumulation Index over that same
period. 50% of these options remain unvested and may be held by
J McFarlane until their expiry date of 31 December 2008. Refer to theRemuneration Report on page 31 for further details.

Notes to the Financial Statements
46: Employee Share and Option Plans (continued)

For personal use only

Option Movements
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2008
financial year and movements during the 2008 financial year are set out below:

Weighted Average Exercise Price

Opening Balance
1 October 2007

Options Granted

Options Forfeited

Options
Expired1

Options Exercised

Closing Balance
30 September 2008

21,693,355

2,001,018

1,721,322

123,289

4,152,181

17,697,581$16.23$0.00$12.19$17.15$16.09$14.81

1 Numbers in the “Options Expired” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which to exercise.

The weighted average share price during the year ended 30 September 2008 was $21.74 (2007: $28.99).
The weighted average remaining contractual life of share options outstanding at 30 September 2008 was 2.5 years (2007: 3.0 years).
The weighted average exercise price of all exercisable share options outstanding at 30 September 2008 was $18.78 (2007: $16.79 ).
A total of 5,327,652 exercisable share options were outstanding at 30 September 2008 (2007: 8,876,289).
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2007
financial year and movements during the 2007 financial year are set out below:

Weighted Average Exercise Price

Opening Balance
1 October 2006

Options Granted

Options Forfeited

Options
Expired1

Options Exercised

Closing Balance
30 September 2007

29,400,706

1,431,170

1,122,241

155,670

7,860,610

21,693,355$17.18–$16.55$17.32$16.77$16.23

1 Numbers in the “Options Expired” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which to exercise.

Financial Report 171

Notes to the Financial Statements
46: Employee Share and Option Plans (continued)

For personal use only

The following options over ordinary shares have been granted since the end of the 2008 financial year up to the signing of the Directors’ Reporton 7 November 2008.

Performance Rights
1 year Deferred/Restricted Share Rights
2 year Deferred Share Rights
3 year Deferred Share Rights
1 year Deferred/Restricted Options
2 year Deferred Options

Grant date

Exercise price$

Earliest exercise date

Expiry date

Options granted

31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008

0.00
0.00
0.00
0.00
17.18
17.18

31-Oct-2011
31-Oct-2009
31-Oct-2010
31-Oct-2011
31-Oct-2009
31-Oct-2010

31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013

368,368
84,65989,121
370,224
1,212,216
418,766

Details of shares issued as a result of the exercise of options during the year ended 30 September 2008 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
12.98
12.98
13.62
13.91
13.91
14.20
14.61

17,473
14,507
5,069
451,191
27,600
194,000
264,500
194,050
729,71654,750–––5,856,459
358,248
2,642,280
3,679,195
2,699,236
10,361,967
799,898

16.09
16.33
17.34
17.55
17.60
18.03
18.22
18.55
20.68
23.49

12,750322,570
149,062
339,691
154,991
211,685
395,538
19,525584,587
8,926

205,148
5,267,568
2,584,735
5,961,577
2,727,842
3,816,681
7,206,702
362,189
12,089,259
209,672

Details of shares issued as a result of the exercise of options during the year ended 30 September 2007 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
9.39
11.09
12.03
13.62
13.91
13.91
14.20
12.98
12.98
12.98
14.61
15.77
16.09
16.33
16.33

22,54920,00057,00010,000126,804
213,175
148,000
648,432
85,200344,573
6,200
49,55076,00016,00091,700480,655–
187,800
632,130
120,300
1,727,070
2,965,264
2,058,680
9,207,734
1,105,896
4,472,558
80,476
723,926
1,198,520
257,440
1,497,461
7,849,096

16.33
18.03
18.03
18.03
18.55
17.34
16.69
17.60
17.55
17.55
18.22
18.22
20.68
20.68
20.49
23.49

50,000522,283
172,600
175,000
34,575422,365
500,000
552,245
968,518
620,868
646,321387,732
102,828
49,319250,000
10,118816,500
9,416,762
3,111,9783,155,250
641,366
7,323,809
8,345,000
9,719,512
16,997,491
10,896,233
11,775,969
7,064,477
2,126,483
1,019,917
5,122,500
237,672

Details of shares issued as a result of the exercise of options since the end of the 2008 financial year up to the signing of the Directors’ Reporton 7 November 2008 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
16.33
18.03

12,481
50,671
397,775
1,925––
6,495,666
34,708

17.34
17.60
17.55
18.22

1,082
2,351
4,287
2,574

18,762
41,37875,237
46,898172 ANZ Annual Report 2008

Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
In determining the fair value below, we used standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing
models. The models take into account early exercise, non-transferability and market based performance hurdles.

For personal use only

The significant assumptions used to measure the fair value of instruments granted during the 2008 financial year are contained in the tablebelow.
Option Type

Grant Date
Number of Options
Option Fair Value (AUD)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility1
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

Performance
RightsPerformance
RightsPerformance
RightsDeferred
Share Rights

Deferred
Share Rights

Deferred
Share Rights

Performance
Rights19-Dec-07
258,620$11.60$0.00$26.8517.0%
4 years
3 years
3 years
4.50%
6.82%

19-Dec-07
259,740$11.55$0.00$26.8517.0%
5 years
4 years
4 years
4.50%
6.73%

19-Dec-07
260,642$11.51$0.00$26.8517.0%
6 years
5 years
5 years
4.50%
6.66%

29-May-08
22,633$18.38$0.00$21.35N/A
5 years
3 years
3 years
5.00%
N/A

9-Nov-07
49,717$25.59$0.00$27.9515.0%
5 years
2 years
2 years
4.50%
6.77%

9-Nov-07
208,780$24.49$0.00$27.9515.0%
5 years
3 years
3 years
4.50%
6.69%

30-Oct-07
940,886$12.30$0.00$29.6915.0%
5 years
3 years
3 years
4.50%
6.63%

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.

The significant assumptions used to measure the fair value of instruments granted during the 2007 financial year are contained in the tablebelow.
Option Type

Grant Date
Number of Options
Option Fair Value (AUD)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility1
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

Deferred
Share Rights

Deferred
Share Rights

Deferred
Share Rights

Deferred
Share Rights

Performance
Rights11-July-07
44,431$25.94$0.00$29.6015%
5 years
3 years
3 years
4.50%
6.37%

1-Nov-06
4,060$27.54$0.00$29.5415%
5 years
1.5 year
1.5 year
4.80%
6.11%

1-Nov-06
29,905$25.66$0.00$29.5415%
5 years
3 years
3 years
4.80%
6.02%

1-Nov-06
129,856$26.89$0.00$29.5415%
5 years
2 years
2 years
4.80%
6.11%

24-Oct-06
1,223,018$13.08$0.00$28.1515%
5 years
3 years
4 years
4.80%
6.00%

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.

Financial Report 173

Notes to the Financial Statements
47: Key Management Personnel Disclosures

For personal use only

KEY MANAGEMENT PERSONNEL Loan Transactions
Details regarding loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group
including their personally related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the reporting period,
are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

Highest balancein the reporting
period$$$$705,489
18,342,000

452,374–

60,641
105,497

707,342
18,342,000

356,800

535,61160,8292,099,851

201,686–

243,616

6,017,051

560,291
7,806,997
3,672,905
2,824,293––
12,438,898
3,055,034
905,479
1,931,834

14,085
973,081250,229
181,186
139,013

1,083,067
14,707,145
4,391,758
2,883,188
2,190,000

1,453,114
3,486,967
2,986,598
2,614,674
600,000

560,291
7,806,997
3,672,905
2,824,293–

122,109564,663
251,450
209,619
41,431

2,954,530
11,047,613
3,893,704
2,824,293
619,902

Directors
Non-executive Directors
2007
J P Morschel8
D M Gonski1
Executive Director
2008
M Smith2
2007
J McFarlane3,4

Other key management personnel
2008
R J Edgar
B C Hartzer
G K Hodges
P R Marriott
A Thursby7
2007
R J Edgar
B C Hartzer5
G K Hodges
P R Marriott
S Targett6

1
2
3
4
5
6
7
8

D Gonski retired effective 30 June 2007.
M Smith appointment as CEO effective 1 October 2007.
J McFarlane retired effective 30 September 2007.
The loan balances largely relate to loans for the purchase of ANZ shares, including the exercise of options.
Interest payments on the loan balances outstanding during the year were reduced as a result of a linked offset account.
S Targett ceased as the Group Managing Director effective 7 June 2007, and his employment with ANZ terminated on 7 June 2008.
A Thursby commenced employment with ANZ in the position of Group Managing Director Asia Pacific effective 3 September 2007.
Loan to an entity that does not meet the definition of a related party in 2008.

Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of directors and other key
management personnel including related parties are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

$

$

$

Directors
2008
2007

356,800
19,249,175

535,611452,374

60,829409,754

1
1

Other key management personnel
2008
2007

14,864,486
11,141,353

18,331,245
14,864,486

1,557,594
1,189,272

4
4

1 Number in the Group includes directors and specified executive with loan balances greater than $100,000.

174 ANZ Annual Report 2008

Number in group at
30 September1

Notes to the Financial Statements
48: Transactions with Other Related Parties
Joint Venture Entities

For personal use only

During the course of the financial year the Company and the Group conducted transactions with joint venture entities on normal commercial
terms and conditions as shown below:

Amounts receivable from joint venture entities
Interest revenue
Dividend revenue
Commissions received from joint venture entities
Costs recovered from joint venture entities

Consolidated

The Company

2008
$000

2007
$000

2008
$000

2007
$000

223,232
16,407
26,950184,058
9,423

230,943
18,922
95,500196,454
9,158

223,224
15,264–
164,795
8,499

218,688
15,253–
176,848
8,553

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

Associates
During the course of the financial year the Company and Group conducted transactions with associates on normal terms and conditions asshown below:

Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest payable
Other revenue
Dividend revenue
Costs recovered from associates

Consolidated

The Company

2008
$000

2007
$000

2008
$000

2007
$000

237,719
71,693
19,144630
12,106
15,451
1,649

98,072
602
9,969
–
–
9,809
1,611

181,223–
14,780
–
2,400
3,979
1,649

50,304
–
5,634
–
–
3,356
1,611

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

Subsidiaries
During the course of the financial year subsidiaries conducted transactions with each other and joint ventures and associates on normal terms
and conditions. They are fully eliminated on consolidation. No outstanding amounts have been written down or recorded as allowances, as they
are considered fully collectible.

Other relationships
In the 2007 Annual Report, in relation to the independence of Margaret Jackson, a non-executive Director of ANZ, it was disclosed that ANZ
has commercial relationships with Qantas Airways Limited (in respect of which Ms Jackson was then Chairman) as a partner in the co-branded
ANZ Frequent Flyer Visa Cards, and that ANZ also acquires travel services from Qantas. Having regard to the nature and value of the commercial
relationships and the Board’s materiality criteria, the Board concluded that Ms Jackson remained independent. Ms Jackson retired from theBoard of Qantas in November 2007.

49: Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:Euro
Great British pound
New Zealand dollar
United States dollar

2008

2007

Closing

Average

Closing

Average

0.55680.44401.19340.79950.60300.4601
1.19180.90690.62230.4355
1.16430.88160.60720.41031.13300.808450: Events Since the End of the Financial Year
Since balance date, global financial and equity markets have exhibited significant volatility. The impact of this volatility on future earnings is notcapable of reliable measurement.
The adjustment for credit risk on structured credit derivatives purchased has moved significantly since balance date, reflecting the depreciationof the AUD against the USD (these derivative trades are in USD) and the impact of extreme market turmoil impacting spreads and correlation, andthere will continue to be substantial volatility in this. However, ANZ expects the adjustment for credit risk on these structured credit derivatives tosubstantially reverse as credit spreads contract and/or the derivatives reach maturity.
Financial Report 175

Directors’ Declaration

The directors of Australia and New Zealand Banking Group Limited declare that:

For personal use onlya) in the directors’ opinion, the financial statements and notes of the Company and the consolidated entity have been prepared in accordancewith the Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards, (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2008 and of theirperformance as represented by the results of their operations and their cash flows, for the year ended on that date; andiii) the financial statements and notes of the Company and the consolidated entity comply with International Financial Reporting Standards
as described in note 1(A)(i).

b) in the directors’ opinion, the remuneration disclosures that are contained on pages 20 to 41 of the Remuneration Report comply with
the Corporations Act 2001; andc) the directors have received the declarations required by section 295A of the Corporations Act 2001; andd) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they becomedue and payable; ande) the Company and certain of its wholly owned controlled entities (listed in note 44) have executed a Deed of Cross Guarantee enablingthem to take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt inaccordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that theCompany and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations
or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee.

Signed in accordance with a resolution of the directors.

Charles Goode
Chairman
7 November 2008

176 ANZ Annual Report 2008

Michael R P Smith
DirectorIndependent Auditor’s Report to the Members ofAustralia and New Zealand Banking Group Limited

For personal use only

Report on the financial report
We have audited the accompanying financial report of Australia and New Zealand Banking Group Limited (the Company), which comprises thebalance sheets as at 30 September 2008, and the income statements, statements of recognised income and expense and cash flow statements
for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 50 and the directors’ declarationof the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material
misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentationof Financial Statements, that the financial report of the Group and of the Company, comprising the financial statements and notes, comply with
International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements andplan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of thefinancial report.

We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the
Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which isconsistent with our understanding of the Company’s and the Group’s financial position and of their performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion
In our opinion:(a) the financial report of Australia and New Zealand Banking Group Limited is in accordance with the Corporations Act 2001, including:(i)	giving a true and fair view of the Company’s and the Group’s financial position as at 30 September 2008 and of their performancefor the year ended on that date; and(ii)	complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001.
(b) the financial report of the Company and the Group also complies with International Financial Reporting Standards as disclosed innote 1(A)(i).

Report on the remuneration report
We have audited the Remuneration Report included in pages 20 to 41 of the directors’ report for the year ended 30 September 2008. The
directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of
the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordancewith auditing standards.

Auditor’s opinion
In our opinion, the remuneration report of Australia and New Zealand Banking Group Limited for the year ended 30 September 2008, complies
with Section 300A of the Corporations Act 2001.

KPMG
Melbourne, Australia
7 November 2008

Michelle Hinchliffe
Partner

Financial Report 177

Financial Information
1: Capital Adequacy
Basel IIAs at
Sep 08$m

Basel IAs at
Sep 07$m

26,552(2,409)22,048(2,318)24,143
2,095
2,847

19,7301,033
3,119

29,085(7,856)–23,882(6,170)716

21,22918,4281,374
9,170(1,206)

2,296
8,826
–

9,338

11,122n/a(1,837)

Total qualifying capital

30,567

27,713

Capital adequacy ratios
Tier 1
Tier 2

7.7%
3.4%

6.7%
4.1%

Deductions

11.1%
n/a

10.8%
(0.7%)

Total

11.1%

10.1%

275,434

275,018

For personal use only

Qualifying Capital

Tier 1
Shareholders’ equity and outside equity interests
Prudential adjustments to shareholders’ equity

Table 1

Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions
Transitional Tier 1 capital relief

Table 2Tier 1 capital

Tier 2Upper Tier 2 capital
Subordinated notes
Deductions

Table 3
Table 4
Table 2Tier 2 capital
Deductions

Risk weighted assets

178 ANZ Annual Report 2008

Table 5

Table 6

Financial Information

For personal use only

1: Capital Adequacy (continued)

Table 1: Prudential adjustments to shareholders’ equity
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance, funds
management and securitisation entities and associates
Deferred fee revenue including fees deferred as part of loan yields
Hedging reserve
Available-for-sale reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Total
Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles
Capitalised software
Capitalised expenses including loan and lease origination fees, capitalised
securitisation establishment costs and costs associated with debt raisings
Applicable deferred tax assets (excluding the component relating to the generalreserve for impairment of financial assets)
Investment in ANZ Lenders Mortgage Insurance
Earnings not recognised for prudential purposes
Other deductions

Basel IIAs at
Sep 08$m

Basel IAs at
Sep 07
$m

(871)

(871)

(841)
351
(78)
88
(1,511)453(2,409)

(398)
306
(153)
(97)
(1,381)276(2,318)(4,889)(625)(4,911)
(462)

(642)

(602)

(92)
–
(117)
(285)

(57)
(101)
–
(37)

Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ Lenders Mortgage Insurance
Investment in Funds Management and Securitisation entities
Investment in joint ventures with ING in Australia and New ZealandInvestment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions
Investment in other commercial operations
Other deductions(6,650)
50%
(65)
(34)
(262)

(6,170)

Gross
(131)
(68)
(524)
(1,219)
(334)
(72)
(64)

(610)
(167)
(36)
(32)

–
–
–
–

Sub-total(2,412)(1,206)–(7,856)(6,170)

248
1,072

197
690

54
–

1,392
17

1,374

2,296

Total

Table 3: Upper Tier 2 capital
Eligible component of post acquisition earnings and reservesin associates and joint ventures
Perpetual subordinated notes
General reserve for impairment of financial assets net of attributable
deferred tax asset1
Transitional Upper Tier 2 capital relief
Total

–
–
–

1 Under Basel II, this consists of the surplus general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised portfolio.

Financial Report 179

Financial Information
1: Capital Adequacy (continued)
Basel IAs at
Sep 07$m

Table 5: Deductions from Total capital1
Investment in Funds Management and Securitisation entities
Investment in joint ventures with ING in Australia and New ZealandInvestment in other Authorised Deposit Taking Institutions (ADIs) and overseas equivalents
Investment in other commercial operations
Other

n/a
n/a
n/a
n/a
n/a

(85)
(525)
(1,025)
(124)
(78)

Total

n/a

(1,837)

Table 6: Risk weighted assets
On balance sheet
Commitments
Contingents
Derivatives

177,570
47,39814,51911,263236,883
15,791
12,018
8,379

Total credit risk
Market risk – Traded
Market risk – Interest rate risk in the banking book
Operational risk

250,750
2,609
4,058
18,017

273,071
1,947––

Total risk weighted assets

275,434

275,018

For personal use only

Basel IIAs at
Sep 08$m

Table 4: Subordinated notes
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of theoriginal amount over the last four years to maturity and are limited to 50% of Tier 1 capital. The fairvalue adjustment is also excluded for prudential purposes as the prudential standard only permits
inclusion of cash received and makes no allowance for hedging.

1 Not applicable under Basel II.

The measurement of risk weighted assets is based on: a) a credit risk-based approach whereby risk weightings are applied to balance sheet
assets and to credit converted off-balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market risk arising from trading
and commodity positions. Trading and commodity balance sheet positions do not attract a risk weighting under the credit risk-based approach.
The Basel II Accord principles took effect from 1 January 2008. For calculation of minimum capital requirements under Pillar 1 (Capital
Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB) methodology
for credit risk weighted assets and Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.
Whilst accreditation has been received a number of aspects of the measurement of risk weighted assets and regulatory capital are still underreview in conjunction with APRA and changes are likely.

180 ANZ Annual Report 2008

Financial Information
2: Average Balance Sheet and Related Interest

For personal use only

Averages used in the following table are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis.
Impaired loans are included under the interest earning asset category ‘loans and advances’. Intragroup interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
2008
Averagebalance$m

Due from other financial institutions
Australia
New ZealandOverseas Markets

2007

Interest$m

Averagerate%

Averagebalance$mInterest$m

Average
rate
%

3,002
1,390
6,171

193
92
250

6.4
6.6
4.1

2,011
1,598
4,987

113
111
264

5.6
6.9
5.3

Trading and available-for-sale assets
Australia
New ZealandOverseas Markets

22,733
2,316
6,223

1,633
187
313

7.2
8.1
5.0

18,164
2,701
3,904

1,157
212
215

6.4
7.8
5.5

Loans and advances
Australia
New ZealandOverseas Markets

221,006
78,103
17,29918,884
7,491
1,042

8.5
9.6
6.0

188,582
73,426
10,387

14,752
6,536
761

7.8
8.9
7.3

Customers’ liability for acceptances
Australia
Overseas Markets

15,397
463

1,347
23

8.7
5.0

13,852
293

1,054
18

7.6
6.1

Other assets
Australia
New ZealandOverseas Markets

4,512
5,152
7,647

366
401
382

8.1
7.8
5.0

4,794
5,054
3,608

355
404
258

7.4
8.0
7.2

Intragroup assets
Australia
Overseas Markets

4,753
1,476

344
92

7.2
6.2

2,910
4,043

232
228

8.0
5.6

397,643

33,040340,314

26,670(6,229)(436)(6,953)(460)

391,41432,604

333,361

26,210Interest earning assets

Intragroup elimination

8.3

7.9

Non-interest earning assets
Derivative financial instruments
Australia
New ZealandOverseas Markets

24,656
4,358
1,889

12,7083,227
667

Premises and equipment

1,513

1,318

Other assets

15,136

14,319Provision for credit impairment
Australia
New ZealandOverseas Markets(2,040)
(442)
(193)

(1,688)
(412)
(167)

44,877

29,972

Total average assets

436,291

363,333

Total average assets
Australia
New ZealandOverseas Markets

303,257
94,76544,498249,686
89,96930,631

442,520370,286(6,229)(6,953)436,291

363,333

31.6%

32.1%

Intragroup elimination% of total average assets attributable to overseas activities

Financial Report 181

Financial Information
2: Average Balance Sheet and Related Interest (continued)
2008

2007

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Time deposits
Australia
New ZealandOverseas Markets

71,69829,65325,274

5,224
2,444
1,016

7.3
8.2
4.0

49,00028,27915,122

3,071
2,096
781

6.3
7.4
5.2

Savings deposits
Australia
New ZealandOverseas Markets

18,062
1,819
584

778
60
8

4.3
3.3
1.4

16,536
2,520
504

597
82
4

3.6
3.3
0.8

Other demand deposits
Australia
New ZealandOverseas Markets

54,90015,720
1,273

3,193
1,063
19

5.8
6.8
1.5

46,42915,938
1,166

2,376
997
29

5.1
6.3
2.5

Due to other financial institutions
Australia
New ZealandOverseas Markets

6,234
1,746
10,804

412
106
447

6.6
6.1
4.1

8,186
1,838
6,724

500
105
357

6.1
5.7
5.3

Commercial paper
Australia
New ZealandOverseas Markets

11,293
9,282
–

834
819
–

7.4
8.8
–

9,981
6,566
926

636
525
49

6.4
8.0
5.3

Borrowing corporations’ debt
Australia
New Zealand

8,637
1,484

618
123

7.2
8.3

8,752
1,722

544
127

6.2
7.4

Liability for acceptances
Australia
Overseas Markets

15,397
463

1,160
23

7.5
5.0

13,852
293

898
17

6.5
5.8

Loan capital, bonds and notes
Australia
New ZealandOverseas Markets

62,458
14,848
359

4,653
1,322
25

7.4
8.9
7.0

55,577
11,841
311

3,651
958
19

6.6
8.1
6.1

Other liabilities1
Australia
New ZealandOverseas Markets

4,495
87
38

280
95
32

n/a
n/a
n/a

5,243
132
421

355
96
38

n/a
n/a
n/a

Intragroup liabilities
New Zealand

6,229

436

7.0

6,953

460

6.6

372,837

25,190314,812

19,368(6,229)(436)(6,953)(460)

366,608

24,754

307,859

18,908For personal use only

Averagebalance$mInterest bearing liabilities

Intragroup elimination

1 Includes foreign exchange swap costs.

182 ANZ Annual Report 2008

6.8

6.1

Financial Information
2: Average Balance Sheet and Related Interest (continued)
2007
Averagebalance$m

Deposits
Australia
New ZealandOverseas Markets

4,787
3,432
1,200

4,734
3,829
1,220

Derivative financial instruments
Australia
New ZealandOverseas Markets

22,841
3,542(884)

11,7192,882(494)

Other liabilities

11,242

10,855

46,16034,745

Total average liabilities

412,768

342,604

Total average liabilities
Australia
New ZealandOverseas Markets

289,291
89,022
40,684

237,762
84,176
27,619418,997

349,557(6,229)(6,953)412,768

342,604% of total average liabilities attributable to overseas activities

29.9%

30.6%

Total average shareholders’ equity
Ordinary share capital1
Preference share capital

22,652871

19,858871

23,523

20,729436,291

363,333

For personal use only

2008
Averagebalance$m

Non-interest bearing liabilities

Intragroup elimination

Total average liabilities and shareholders’ equity
1 Includes reserves and retained earnings.

Financial Report 183

Financial Information
3: Interest Spreads and Net Interest Average Margins
2008
$m

2007
$m

5,614
1,703
533

5,036
1,817
449

7,850

7,302

271,403
86,961
39,279(6,229)230,31382,77927,222(6,953)

391,414333,361%%

Gross earnings rate2
Australia
New ZealandOverseas Markets
Group

8.39
9.40
5.35
8.33

7.67
8.77
6.41
7.86

Interest spreads and net interest average margins may be analysed as follows
Australia
Gross interest spread
Interest foregone on impaired assets

1.62(0.01)

1.77(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.61
0.46

1.76
0.43

Net interest average margin – Australia

2.07

2.19

New ZealandGross interest spread
Interest foregone on impaired assets

1.42(0.02)

1.60(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.40
0.56

1.59
0.61

Net interest average margin – New Zealand

1.96

2.20

Overseas Markets
Gross interest spread
Interest foregone on impaired assets

1.33(0.02)

1.35(0.03)Net interest spread
Interest attributable to net non-interest bearing items

1.31
0.05

1.32
0.33

Net interest average margin – Overseas Markets

1.36

1.65

Group
Gross interest spread
Interest foregone on impaired assets

1.59(0.01)

1.73(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.58
0.43

1.72
0.47

Net interest average margin – Group

2.01

2.19

For personal use only

Net interest income1
Australia
New ZealandOverseas Markets

Average interest earning assets
Australia
New ZealandOverseas Markets
Intragroup elimination

1 On a tax equivalent basis.
2 Average interest rate received on interest earning assets. Overseas Markets includes intragroup assets.

184 ANZ Annual Report 2008

Financial Information
4: Special Purpose and Off-Balance Sheet Entities

For personal use only

Below is an analysis of the assets of consolidated and non-consolidated special purpose entities (SPEs) which ANZ has established or
manages. The disclosures do not include every transaction that the Group has entered into with an SPE. This note is designed to reflect theGroup’s main exposures to SPEs. This analysis excludes vehicles that are used in connection with stock-based compensation programs.
Non-consolidated
SPEs

Total assets of SPEs
Securitisation vehicles
Structured finance entities1
Credit protection

Consolidated
SPEs1

2008
$m

2007
$m

2008
$m

2007
$m

8,021
n/a
2,145

7,786
n/a
2,145

11,884
147
–

2,328
95
–

10,166

9,931

12,031

2,423

1 ANZ’s net investment in non-consolidated Structured Finance entities is $166 million at 30 September 2008 (30 September 2007: $229 million)

Total assets of SPEs:

Non-consolidated SPEs which
ANZ established or manage
Corporate loans1
Rural loans
Trade receivables
Residential mortgages
Credit cards and other personal loans
Car loans and equipment finance
Other2

Consolidated SPEs
Corporate loans
Trade receivables
Residential mortgages
Car loans and equipment finance
Other

Australia

New Zealand

Other

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2,145
2,064
2,096
1,442
13
577
1,018

2,145
1,737
2,166
1,520
34
621
658

–
–
–
–
557
–
254

–
–
–
215
557
–
278

–
–
–
–
–
–
–

–
–
–
–
–
–
–

2,145
2,064
2,096
1,442
570
577
1,272

2,145
1,737
2,166
1,735
591
621
936

9,355

8,881

811

1,050

–

–

10,166

9,931

–
185
10,731
69
559

–
162
1,019
182
529

–
–
–
–
–

–
–
–
–
–

410
–
–
77
–

415
–
–
83
33

410
185
10,731
146
559

415
162
1,019
265
562

11,544

1,892

–

–

487

531

12,031

2,423

1 Exposures to corporate loans created through derivatives and a deposit with ANZ.
2 Includes investment loans and insurance premiums.

Maximum exposure to non-consolidated SPEs1
Liquidity support facilities (drawn)2
Liquidity support facilities (undrawn)
Credit default swaps (net fair value)
Other facilities (drawn)
Other facilities (undrawn)
Notes held in credit protection entities
Other derivatives (net fair value)Non-consolidated
SPEs1
2008
$m

2007
$m

1,237
3,290
33
1,768
958
393
21

1,976
2,753
3
872
315
–
(4)

7,700

5,915

1 Excluding Structured Finance entities.
2 Facilities amounting to $0.9 billion were drawn on consolidated special purpose entities as at September 2007.

Financial Report 185

Financial Information
5: Leveraged Finance
The Group has a dedicated Leveraged & Acquisition Finance team, which provides secured financing for the acquisition of companies throughthe use of debt.

For personal use only

Leveraged & Acquisition Finance provides acquisition finance for private equity firms and other corporations with operations in Australia and
New Zealand, and concentrates on company cash flows. Target businesses are those with stable and established earnings and the ability to
reduce borrowing levels.
The tables below provide an analysis of the credit exposures arising from the provision of leverage finance. This excludes all public company
acquisition finance which may be undertaken by the Leveraged & Acquisition Finance Team because it has a different risk profile.
Unfunded commitments

Funded exposures

Total gross exposures

Individual provision

Net exposure

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

141
139
46
103
34
50

270
145
55
83
89
110

744
628
131
532
146
666

548
436
133
330
47
293

885
767
177
635
180
716

818
581
188
413
136
403

(9)
(13)
–
–
–
–

(10)
–
–
–
–
–

876
754
177
635
180
716

808
581
188
413
136
403

513

752

2,847

1,787

3,360

2,539

(22)

(10)

3,338

2,529

271
175
67

588
164
–

1,507
1,156
184

977
771
39

1,778
1,331
251

1,565
935
39

(22)
–
–

(10)
–
–

1,756
1,331
251

1,555
935
39

513

752

2,847

1,787

3,360

2,539

(22)

(10)

3,338

2,529

2008
$m

2007
$m

Movements in individual provision
Balance at start of year
Charge to income statement
Bad debts written off

10
30
(18)

3
16
(9)

Total individual provision

22

10

Exposure by industry
Manufacturing
Business services
Healthcare
RetailMedia
Other

Exposure by geography
Australia
New Zealand
Other

186 ANZ Annual Report 2008

Financial Information
6: Asset-Backed Securities

For personal use only

The Group may acquire asset-backed securities primarily as part of the trading activities (classified as trading securities), liquidity management(classified as available-for-sale assets) or through investments in special purpose vehicles. Asset-backed securities are debt instruments thatare based on pools of assets or are collateralised by the cash flows from a specified pool of underlying assets. All asset-backed securities heldby the Group are carried at fair value on the balance sheet. Specifically with regard to residential mortgage backed securities originated in theUS, the following terminology may be used in the industry:
Subprime mortgages – sub-prime represents mortgages granted to borrowers with a poor or limited credit history. Sub-prime loans carryhigher interest rates to compensate for potential losses from default.
Alternative-A-paper – US mortgages underwritten with lower or alternative documentation than a full documentation mortgage loan or withhigher loan to valuation ratios than mortgages guaranteed by US Government sponsored enterprises. Alt-A mortgages have a stronger risk
profile than sub-prime mortgages.
Alt-A mortgages – these are loans that are underwritten with lower or alternative documentation than a full documentation mortgage loan.
As a result, Alt-A mortgage loans may have a higher risk of default than non-Alt-A mortgage loans. In reporting our Alt-A exposure, we haveclassified mortgage loans as Alt-A if mortgage-related securities that we hold in our portfolio were labelled as Alt-A when we bought them.

While note 33 Financial Risk Management provides a comprehensive analysis of the quality of all financial instruments giving rise to credit risk,
the tables below contain a similar analysis for held asset-backed securities only.
Face value

Asset-backed securities
Collateralised debt obligations1
Commercial mortgage backed securities
Residential mortgage backed securities
Other asset-backed securities

Trading portfolio

Carrying amount by classificationof underlying assets
Sub-prime
Alt-A
A rated (mortgage) paper and other assets

Carrying amount by rating andlocation of underlying assets
Australia and New Zealand
U.S.A.

Carrying amount1

2008
$m

2007
$m

2008
$m

2007
$m

395
140
892
461

33
156
1,118
549

393
138
655
453

28
154
1,070
543

1,888

1,856

1,639

1,795

Liquidity portfolio

Other

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

–
–
161

–
–
174

–
318
211

–
530
243

–
–
949

–
–
848

–
318
1,321

–
530
1,265

161

174

529

773

949

848

1,639

1,795

AAA & AAA

BB and below inc
not rated

BBB

Total

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

2008
$m

2007
$m

552
412

158
801

557
117

821
–

1
–

1
–

–
–

14
–

1,110
529

994
801

964

959

674

821

1

1

–

14

1,639

1,795

1 September 2008 comprises notes held in a credit protection SPE, refer page 76.

Financial Report 187

Glossary
AAS – Australian Accounting Standards.

IFRS – International Financial Reporting Standards.

AASB – Australian Accounting Standards Board.

Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided becauseof the financial difficulties of the customer. Financial Assets are
impaired if there is objective evidence of impairment as a resultof a loss event that occurred prior to the reporting date, and thatloss event has had impact, which can be reliably estimated, on
the expected future cash flows of the individual asset or portfolioof assets.

AFS – Available-for-sale assets.

For personal use only

AIFRS – Australian Equivalents to International Financial ReportingStandards.
Alt-A – Alternative A-paper, US mortgages underwritten with lower
or alternative documentation than a full documentation mortgage
loan or with higher loan to valuation ratios than mortgages
guaranteed by US Government sponsored enterprises. Alt-A
mortgages have a stronger risk profile than sub-prime mortgages.
APRA – Australian Prudential Regulation Authority.
Asia Pacific – Asia Pacific includes the following:– Retail Asia includes the Personal and Private Banking Asia business.
– Asian Partnerships is a portfolio of strategic retail partnerships in
Asia. This includes partnerships in Indonesia with PT Panin Bank, in
the Philippines with Metrobank, in Cambodia with the Royal Group,in China with Bank of Tianjin and Shanghai Rural Commercial Bank,in Malaysia with AMMB Holdings Berhad and in Vietnam withinvestments in Sacombank and Saigon Securities Incorporation.

– Institutional Asia Pacific includes the trade finance, relationshiplending, markets and corporate finance businesses in Asia andforeign exchange activities in the Pacific Region.
– Retail Pacific provides retail and corporate banking services
to customers in the Pacific region.

– Executive & Support includes the central support functions
for the division.
Collective provision is the provision for Credit Losses that are
inherent in the portfolio but not able to be individually identified;presently unidentified impaired assets. A collective provision
may only be recognised when a loss event has already occurred.
Losses expected as a result of future events, no matter how likely,
are not recognised.
Credit equivalent represents the calculation of on-balance sheet
equivalents for market related items.
Customer Deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding collateralised loan obligation and securitisation
vehicle funding.

Equity standardisation. Economic Value Added (EVATM) principles
are in use throughout the Group, whereby risk adjusted capital isallocated and charged against business units. Equity standardised
profit is determined by eliminating the impact of earnings on eachbusiness unit’s book capital and attributing earnings on the business
unit’s risk adjusted capital. This enhances comparability of business
unit performance. Geographic results are not equity standardised.
Group Centre division includes Operations, Technology and Shared
Services, Treasury (funding component), Group Human Resources,
Group Strategic Development, Group Financial Management, Group
Risk Management, Capital Funding, Group Items and Private Bank.
Private Bank specialises in assisting high net worth individuals andfamilies to manage, grow and preserve their assets. The contributionof the Private Bank business in the Group Centre includes only salescommissions. Other revenue earned is recognised in Personal.

188 ANZ Annual Report 2008

Income includes external interest income and other external
operating income.
Individual provision charge is the amount of expected credit
losses on those financial instruments assessed for impairment
on an individual basis (as opposed to on a collective basis).
It takes into account expected cash flow over the lives of thosefinancial instruments.
INGA includes the equity accounted earnings from our 49% stakein ING Australia Ltd, a joint venture between ANZ and ING.
Institutional division provides a full range of financial services
principally to ANZ Australia and New Zealand corporate andinstitutional customers in all geographies. Institutional has amajor presence in Australia and New Zealand and also operations
in Europe, USA and Asia.
Working Capital provides working capital solutions including
lending and deposit products, cash transaction banking
management, trade finance, international payments, clearing
and custodian services principally to Institutional and Corporate
customers.
Relationship Lending manages the Institutional and Corporate
balance sheets with a particular focus on credit quality,
diversification and maximising risk adjusted returns.
Markets provides risk management services to Corporate
and Institutional clients globally in relation to foreign exchange,interest rates, credit and commodities. This includes thebusiness providing origination, underwriting, structuring andrisk management services, advice and sale of credit and derivative
products globally. Markets also manages the Group’s interest
rate risk position.
Business Banking provides a full range of banking services,
including risk management, to metropolitan based small to
medium sized business clients with up to $50 million turnover.
Corporate Finance excluding Relationship Lending provides
complex financing and advisory services, structured financial
products, leasing, private equity finance, project finance,
leveraged finance and infrastructure investment products to
our global client set.
Relationships & Infrastructure includes Institutional Banking,
Financial Institutions and Corporate Banking. These units use ourclient relationship teams for our global Institutional and Financial
Institutions customers and our Corporate customers in Australia.

Glossary
Liquid assets are cash and cash equivalent assets. Cash equivalent
assets are highly liquid investments with short periods to maturity,
are readily convertible to cash at ANZ’s option and are subject to an
insignificant risk of changes in value.

For personal use only

Net advances include gross loans and advances and acceptancesand capitalised brokerage/mortgage origination fees, less income
yet to mature and allowance for credit impairment.
Net interest average margin is net interest income as a percentageof average interest earning assets. Non-assessable interest income
is grossed up to the equivalent before tax amount for the purposeof these calculations.
Net interest spread is the average interest rate received on interest
earning assets less the average interest rate paid on interest bearing
liabilities. Non-assessable interest income is grossed up to theequivalent before tax amount for the purpose of these calculations.
Net non-interest bearing items, which are referred to in the analysis
of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, deposits
not bearing interest and other liabilities not bearing interest, offset
by premises and equipment and other non-interest earning assets.
Non-performing loans are included within interest bearing loans,advances and bills discounted.
Net tangible assets equals share capital and reserves attributable
to shareholders of the Group less preference share capital andunamortised intangible assets (including goodwill and software).
New Zealand Businesses includes the following businesses:
ANZ Retail – operating under the ANZ brand in New Zealandprovides a full range of banking services to personal andbusiness banking customers.
NBNZ Retail – operating under the National Bank brand in
New Zealand, provides a full range of banking services topersonal and business banking customers.
Corporate and Commercial Banking in New Zealand – incorporates
the ANZ and National Bank brands and provides financial solutions
through a relationship management model for medium-sizedbusinesses with a turnover up to NZD100 million.
Rural Banking in New Zealand – provides a full range of banking
services to rural and agribusiness customers.
Private Banking and Retail Specialist Units – includes ANZ’s
49% stake in ING New Zealand, Private Banking operating underthe ANZ and National brands and Bonus Bonds.
UDC – provides motor vehicle and equipment finance, operatingleases and investment products.

Non-core items are disclosed separately in the income statement
to remove volatility from the underlying business result, and include
significant items, and non-core income arising from the use ofderivatives in economic hedges on fair value through profit and loss.
Non-performing commitments and contingencies comprises
undrawn facilities and contingent facilities where the customer’s
status is defined as impaired.

Operating expenses exclude the provision for impairment of loans
and advances charge.
Operating income in business segments includes equity
standardised net interest and other operating income.
Operations, Technology & Shared Services comprises the Group’s
core support units responsible for operating the Group’s global
technology platforms, development and maintenance of businessapplications, information security, the Group’s payments backoffice processing, and the provision of other essential sharedservices to the Group, including property, people capital operations,procurement and outsourcing.
Overseas includes the results of all operations outside Australia,
except if New Zealand is separately shown.
Overseas Markets includes all operations outside of Australia
and New Zealand. The Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Personal is a division comprising Rural Commercial & Agribusiness
Products, Small Business Banking Products, Banking Products,
Mortgages, Consumer Finance, Investment and Insurance Products,
Esanda, and a number of other areas, including the branch networkand marketing and support costs in Australia.
Mortgages – provides housing finance to consumers in Australia
for both owner occupied and investment purposes.
Banking Products – provides transaction banking and savings
products, such as term deposits, V2+, and cash management
accounts.
Consumer Finance – provides consumer and commercial credit
cards, ePayment products, personal loans, merchant payment
facilities in Australia and ATM facilities.
Rural Commercial & Agribusiness Products – provides a full rangeof banking services to personal customers and to small businessand agribusiness customers in rural and regional Australia.
Small Business Banking Products – provides a full range of banking
services for metropolitan-based small businesses in Australia with
unsecured loans up to $100,000.
Esanda – provides motor vehicle and equipment finance, operatingleases and investment products.
Investments and Insurance Products – comprises ANZ Australia’s
Financial Planning, Margin Lending, insurance distribution, Trustees
business and ETrade Australia, an online broking business.
Repo discount is a discount applicable on the repurchase by a central
bank of an eligible security pursuant to a repurchase agreement.
Restructured items refers to customers who have been provided
concessions due to their financial difficulties. In the courseof restructuring facilities, the following concessions might beconsidered: a reduction in the principal amount; a deferral of
repayments; and/or an extension of the maturity date materiallybeyond those typically offered to new facilities with similar risk.

Non-performing loans comprises drawn facilities where thecustomer’s status is defined as impaired.

Glossary 189

Glossary
Return on asset ratios include net intra group assets which are risk
weighted at 0% for return on risk weighted assets calculations.
Revenue includes net interest income and other operating income.

For personal use only

Segment assets represents total external assets excluding deferred
tax assets.
Segment result represents equity standardised profit before income
tax expense.
Segment revenue includes equity standardised net interest income
and other operating income.
Service transfer pricing is used to allocate services that areprovided by central areas to each of their business units. The
objective of service transfer pricing is to remove cross-subsidies
between business units, and ensure each business accounts forthe cost of the services it uses.
Service transfer pricing charges are reported in the profit and loss
statement of each business unit as:
Net inter business unit fees – includes intra-group receipts
or payments for sales commissions and branch service fees.
A product business will pay a distribution channel for productsales. Both the payment and receipt are shown as net interbusiness unit fees.
Net inter business unit expenses – consists of the charges
made to business units for the provision of support services.
Both payments by business units and receipts by service
providers are shown as net inter business unit expenses.

Significant items are items that have a substantial impact on profit
after tax, or the earnings used in the earnings per share calculation.
Significant items also do not arise in the normal course of businessand are infrequent in nature. Divestments are typically defined as
significant items.
Sub-prime represents mortgages granted to borrowers with a pooror limited credit history. Sub-prime loans carry higher interest rates
to compensate for potential losses from default.
Sub-standard assets are customers that have demonstrated some
operational and financial instability, with variablility and uncertainty
in profitability and liquidity projected to continue over the short andpossibly medium term.
Total advances include gross loans and advances and acceptancesless income yet to mature (for both as at and average volumes).
Loans and advances classified as available-for-sale are excluded
from total advances.

190 ANZ Annual Report 2008

For personal use onlyThis page has been intentionally left blank

Glossary 191

Alphabetical Index
Impaired Financial Assets

93

Income Statements

60

115

Income Tax Liabilities

103

Associates

155

Income78

Available-for-sale Assets

91

Independent Auditor’s Report

177

Average Balance Sheet and Related Interest

181

Interest Spreads and Net Interest Average Margins

184

Balance Sheets

61

Interests in Joint Venture Entities

155

Bonds and Notes

105

Key Management Personnel Disclosures

174

Capital Adequacy

178

Leveraged Finance186

Capital Management

113

Liquid Assets

84

Cash Flow Statements

63

Loan Capital

106

Chairman’s Report2

Maturity Analysis of Assets and Liabilities

148

Chief Executive Officer’s Report

3

Minority Interests

112

Chief Financial Officer’s Report

4

Asset-Backed Securities

For personal use only

Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets

Commitments

187

Net Loans and Advances

92

158

Notes to the Cash Flow Statements

152

Compensation of Auditors

80

Notes to the Financial Statements

64

Controlled Entities

154

Other Assets

101

Payables and Other Liabilities

104

Premises and Equipment

101

Provision for Credit Impairment

93

Provisions

104

Remuneration Report20

Reserves and Retained Earnings

111

Securitisations

157

Segment Analysis

148

Share Capital

109

Shareholder Information

56

Shares in Controlled Entities, Associates andJoint Venture Entities

96

Significant Accounting Policies

64

Special Purpose and Off-Balance Sheet Entities

185

Statements of Recognised Income and Expense

62163

Corporate Governance Statement

42

Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets

159

Critical Estimates and Judgements Usedin Applying Accounting Policies

76

Current Income Tax Expense

81

Deposits and Other Borrowings

103

Derivative Financial Instruments

85

Directors’ Declaration

176

Directors’ Report

16

Dividends

82

Due from Other Financial Institutions

84

Earnings per Ordinary Share83

Employee Share and Option Plans

168

Events Since the End of the Financial Year175

Exchange Rates

175

Expenses

79

Superannuation and Other Post Employment
Benefit Schemes

Fair Value of Financial Assets and Financial Liabilities

141

Tax Assets

99

Fiduciary Activities

157

Ten Year Summary

14

Financial Information

178

Trading Securities

84

Financial Report

60

Transactions with Other Related Parties

175

Financial Risk Management

116

Glossary of Financial Terms

188

Goodwill and Other Intangible Assets

100

192 ANZ Annual Report 2008

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Australia and New Zealand Banking Group Limited ABN 11 005 357 522