TRANSCRIPTION
Company:

ANZ

Date:

22 March 2024Time:

11:15am, AEDT

Duration:

1hr 17 min

Reservation Number:

10037792[START OF TRANSCRIPT]
Operator:Thank you for standing by and welcome to the ANZ Institutional Business
Round Table. All participants are in a listen-only mode. There will be apresentation, followed by a question and answer session. If you wish to ask aquestion you will need to press the star key followed by the number one on yourtelephone keypad. I would now like to hand the conference over to Ms Jill
Campbell. Please go ahead.

Jill Campbell:Thanks, Kayleigh. Good morning everyone and welcome to ANZs Institutional
Market Business Presentation. I’m Jill Campbell, ANZs head of IR. We’representing today on the lands of the Wurundjeri people and on behalf of theteam I pay my respects to Elders past and present.
The session is being recorded. It will be available for replay via the ANZ
website later today. The presentation pack being used was sent around to you
all earlier today. It’s also available on the ANZ website in both the shareholder
centre and the analyst toolkit and in the presentation section.
We’ve got three speakers this morning. Group Exec, Institutional, Mark Whelan.
Our MD, Markets, Anshul Sidher and the Institutional Division CFO, Romesh
Curtis.
They’ll speak for around 25 minutes after which we will go to Q&A. We’re goingto aim to finish around noon but we’re conscious that we don’t want to cut
questions off.
So, in the, hopefully unlikely, event that you didn’t get your question in, pleasecontact the IR team this afternoon and we’ll sort that out. With that, I’ll hand it
across to you Mark.

Mark Whelan:

Terrific. Thanks, Jill. Welcome everyone and thanks for joining us today. The
main purpose of today is to talk to you about our markets business building on
the session we had in September last year on our Payments and Platforms
business.
We’ll explain what it is we do. What we’ve been investing in and what makes
our market business different to its peers. Now we’re going to keep it relatively
high-level today but there will be opportunities to go into more detail in the Q&A
and also in future sessions.
Markets is a critical element of our customer proposition for institutionalcustomers and it’s very high returning. Our Markets Team is a whole of bankresource with global distribution capability, supporting retail, commercial andinstitutional customers.
As mentioned in the Payments and Platform session last year, our institutional
business is well-placed to grow profitably and support our customers globally.
The institutional business has transformed since 2016 and today is a very
different business. As an example, today’s revenues are evenly spread acrossour three core products with transaction banking, corporate finance, andmarkets each contributing one-third of revenues each.
Last year, each product line achieved more than $2 billion in revenue and incomparison, in 2016, 45% of our revenue came from capital-heavy loans incorporate finance.
So you can see that we’ve really transformed the spread of business. As well
as diversifying revenue streams, we are focused on the quality of our people
and risk management. Today our employee engagement scores are at world
best benchmarks. Our risk management processes and being accountable forall elements of risk is part of our culture.
As a result, credit losses have reduced in line with our focus on risk
management and most importantly the quality of our customer base.
We are focused on 6,300 high-quality customers who value our product,
services and the network. We are focused on priority sectors with the highest
return in growth prospects. Financial services and funds is an example. We’vedeveloped long-term and deep relationships with the best customers globally.
Return on risk weighted assets is now more than double than that of what it
was in 2016 at 1.59%.
We’ve invested in global technology platforms carefully and consistently overthe past seven years, simplifying our tech stack and ensuring we’re well
positioned for what comes next.
The institutional business today is very different and is well positioned tomaintain strong returns going forward.
The business mix, quality customer base and culture are all drivers of thisbusiness. We are using our high returning geographic network and particularly
our access to Asian markets to give us a unique competitive advantage andcustomer proposition and this is particular true for our Markets business.
Now, as I've mentioned, we have invested in technology and systems over thelong term. As we discussed at the September Payments and Platforms Briefing,
we have simplified the network and technology supporting our business. We
have invested in connecting single product platforms for the globally integrated
right across our network. We call this the digital backbone of our business and it
allows our teams to work easily together regardless of where they are located.
Our FX team in Jakarta uses the same tools and customer information as ourMarkets teams in Singapore or in New York. We have one credit management
system for our large customers, one global trade system, one global loansystem and one customer onboarding system. In Markets we use a system wedeveloped called Sky for markets pricing, valuation, profit and loss and risk
management. It's used by our Markets team, Group Treasury, Finance and Risk
teams globally and much like our payment's infrastructure, it was developed inhouse.
As a result, we have retired 134 technology assets and systems supporting theMarkets business over the past eight years. We have invested consistently in
our technology systems and will continue to invest in our strategic platforms.
Consequently, we have got a strong base that we use to create value forcustomers and shareholders and also, importantly, to manage our risk. As aresult, we believe our network is unparalleled. Our network of 29 markets,particularly focused on the Asia Pacific region and connected through the digitalbackbone provides us with a unique and powerful differentiation for ourdomestic and international competitors.
When you add together the components of this business, the leading Payments
and Cash Management business, which we took you through last year, ageographically diverse and specialised Markets team, deep relationships withcustomers resulting in them naming ANZ as the most reliable source of funding
and long term and careful investment in technology, it's clear that our strategy isadding value for customers and shareholders. We are a more diverse businessthan ever before, but more importantly, a high returning business withsustainable opportunities.
Now, the Markets business delivered $2.1 billion in revenue last year. So, I'dlike to introduce Anshul Sidher to you. Anshul was appointed Managing Directorof Markets in August of last year. In just a few moments Anshul will take you
through the drivers of that revenue and the strategic relevance of our Markets
offering. He will be followed by Romesh Curtis, Chief Financial Officer for ANZ
Institutional. Romesh will then explain how Markets operations impact theGroup net interest margin, which is a technical issue that some of you haveasked for more detail on.
With that, I will hand over to you Anshul.
Anshul Sidher:

Thanks Mark and good morning, everyone. My name is Anshul Sidher and I
have taken on the MD Markets role in August of last year. Just a briefbackground. I have been with ANZ since 2012 starting off as the Global Head ofRates and setting up the local Markets business in Asia. Over the last decade,my responsibilities at ANZ have spanned across leading our Trading functions,which included the balance sheet, our Capital Market business and our sales
franchise in Asia.
Prior to joining ANZ, I was in similar roles at Barclays Capital, Dresdner
Kleinwort and Citibank in Singapore, London and Frankfurt. Today, I will briefly
talk to you about our Markets business, the revenue drivers and our strategic
direction.

ANZ has the largest Markets business amongst the domestic major banks.
What is unique is that 60% of Markets income comes from outside of Australia
and New Zealand. We delivered around 10% of ANZ Group revenues, but thenuance is the business has the ability to produce strong results in both low
interest environments like 2020 as well as high interest environments like 2023.
Now, growing our returns and doing that consistently is a real priority forMarkets as well as Institutional Bank.
Now, there are really two components to the ANZ Markets business. First, is
our customer driven activity across sales, trading and capital market functions
providing financing, hedging and investment solutions, what we call franchise in
our results. The other component is really the work we do to manage ANZ'sbalance sheet under delegation from ANZ Group Treasury. In a sense, Markets
is really the portfolio manager for the Bank where we optimise our liquidity
portfolio and also manage the asset liability mismatch on our balance sheet
across all our divisions.
For today's briefing I will give a bit more detail around our franchise activity
which accounts for somewhere between 65% to 70% of Markets revenue forthe cycle. I will talk you through four key business lines and the propositions
they offer to our customers.
Starting off first with our Foreign Exchange business which had close to around$700 million of revenue to the cycle, is the largest and highest returningbusiness.
Now, in a highly decentralised market like foreign exchange, competitive
advantages come from really having access to deep pools of liquidity. Our
unique geographic footprint and connectivity across our retail, commercial andinternational client base forms the foundation of our price competitiveness in
Aussie and Kiwi foreign exchange.
We have built much of our foreign exchange infrastructure inhouse and unlike
competitors we don't rely on white label to derive pricing. We have invested
over $75 million in our Foreign Exchange infrastructure in just the last five years
to build our proprietary technology. Now, that gives us a degree of protection
from margin compression in what are really competitive G10 foreign exchange
markets.

We are the number one bank in foreign exchange by market penetration andmarket share as has been reported in the Peter Lee Corporate Surveys inAustralia. Now, another unique part of our Foreign Exchange business at ANZ
is really the local market Foreign Exchange business in Asia serving family andmultinational clients in the network.
Much of the local market foreign exchange suite services trade, expense anddividend hedging for large cap corporate customers, while also offering offshore
risk management solutions for investors client base which ranges from banks toinsurance companies. Now, today, trading in local markets spans from CNH in
North Asia to INR or Indian Rupee or Indonesian Rupiah in India and Indonesia
and has grown to be almost 80% the size of our G10 Foreign Exchange
Trading business.
Moving onto Rates which delivers around $400 million annually in revenue andis centred on serving our corporate clients in Australia and New Zealand. Our
key proposition in Rates come through our network where we comment
Australian and Kiwi corporates, governments and our own Treasury todifferentiated pools of global liquidity.
To give you an example, we link Aussie and Kiwi borrowers with central banks
who manage these currencies as Aussie and Kiwi as part of their reserve
management mandates and also insurance customers in Asia. These activities
in the primary loan and bond market creates flows in currency swaps and ANZ
is recognised as a market leader in currency swaps by the Peter Lee survey.
Much like Foreign Exchange, we also have a unique local market rates
business in Asia supporting our clients in the network while also offering thediverse set of markets for risk expression in interest rate trading. What thathelps us is really produce better quality trading returns at a much morediversified and lower bar.
Now, closely tied to Rates is our Fixed Income business in credit. ANZ is the
go-to house for investment grade credit in the Eastern Hemisphere. We areranked number one in primary market lead tables in Australia and New Zealandand number one in the investment grade secondary trading across Australia,
New Zealand and Asia.

This unique positioning in covering bonds across Australia, New Zealand andAsia, makes us the bank of choice for asset managers who deal in investment
grade credit in the Asian time zone. Right from super funds in Australia to large
fixed income fund managers and bank balance sheets in Asia, ANZ is the portof call for offering and recycling high grade bonds through our deep secondary
market connectivity. Our strategy of linking primary origination backed by strong
secondary trading support also makes us a valuable partner for primary market
issues who value the liquidity service we bring to the debt as a market maker.
Another pillar of our franchise beyond Capital Markets and secondary trading is
our securitisation business in Australia servicing primary market placement orresidential mortgage-backed securities and asset backed securities. Across ourdebt capital markets secondary and securitisation businesses, the credit
business generates circa $200 million in revenue through the cycle.
Finally, commodities. Our Commodity business is centred around two key
propositions, precious metals and energy trading, which includes carbon
trading. We will talk a bit more about precious a bit later when we cover net
interest margin, so I will focus on our energy and carbon trading capabilities
here.
Now, unlike some of the Australian commodity majors, ANZ Business focuseson commodity supply chains between Australia and Asia providing risk hedging
solutions to commodity producers and consumers while recycling risk in theregion. Our typical transactions involve connecting producer and end consumer
hedging flows across upstream producers in Australia, midstream distributors in
Singapore and South East Asia and the downstream consumers in North Asia
which makes the proposition unique.
We are also growing our offering in carbon capabilities to support carbon
abatement and sequestering projects with a focus on ACCU trading inAustralia. This remains an important part of our environment to market offering
where we closely partner with our loan originating teams in corporate finance.
In summary, the way I think about the Markets business is that the most flexible
way for the Group to deploy balance sheet, whether it be between cash andderivatives, or between asset inventory or bond liabilities packaged as
investment products. With that background, I will briefly cover the strategic

imperatives which we have outlined in the material we have presented on page
12 in the pack.
Across our asset classes Foreign Exchange and Rates contributes more than
75% of our customer led revenue through the cycle. We have a unique
opportunity because of our network and customer flows to distribute Australianand New Zealand flow globally and to do that digitally. We are focused oncontinuing to build out our Foreign Exchange and Rates capabilities as wecreate what I call scale in the core of the Markets business.
Then we have a credit and liquids business, which tends to do well in risk-off
environments, especially given ANZ’s high-grade credit focus. Now, we intend
to maintain what I would call capability to do well in risk-off environments with afocus on more fee-based revenue lines in both credit and capital markets.
Finally, what we call closed cyclical businesses, or business which do well in
inflationary environment like commodities or even capabilities like repo, security
financing, and part of our options business offer the diversification we need todeliver results consistently. We’ll be looking to add selective pockets ofdiversified capability to enable us to ride economic cycles better.
Now, before I wrap up, that leads me to NIM. I have with me Romesh Curtis,
our Group – our divisional CFO who will give you a more in-depth view ofmarket’s net interest margin. Just a brief word on that before I hand over. Our
gold bullion lending business has some very specific implications for our NIM. I
would like to make a few simple points.
Our bullion lending business is really focused on servicing our financial
institution clients and is a very important part of our service offering. The NIM
aspect of the bullion lending is very nuanced because gold, unlike currency, is azero-interest asset. What that means is that the forward curve for gold isupward-sloping, or to keep it simple, the higher the level of interest rate, thesteeper the forward price of gold. When we make these loans in bullion, or gold,
we incur a funding cost that sits in the NII as an interest expense.
However, the way we recoup this cost is through the forward contracts in ourderivative books, which feeds into other operating income. What really happens

is that between the funding cost and the derivative returns, we are able toproduce significantly higher returns, well above our cost of capital.
With that, I will pass on to Romesh to take you through Markets NIM in moredetail.
Romesh Curtis:

Thanks, Ansul and good morning, everyone. For now, I’ll turn to the technicalissue of how Markets activities flow through to Group revenue and how this
impacts the Group net interest margin. This impact, and the classification ofrevenue between net interest income, or NII, and other operating income, OOI,
is technical. I’ll first start with three high-level points.
First, as Anshul said, the Markets business is run to optimise ROE andrevenue. The business takes on activity that is accretive to risk-adjusted returns
and revenue. Second, the business doesn’t try to optimise the NIM or NII.
That’s because the NII and OOI breakdown in Markets is often in the outcomeof accounting classification with NIM and NII representing an incomplete view ofthis performance. Third, because of this we tend to separate Markets activity
when we present the Group NIM.
Nevertheless, we do get a lot of questions on how this NII/OOI classification
works, and I’ll take you through this detail with reference to the slide packpublished.
Before we get into the classification of NII and OOI, I’d like to start with theimpact of liquidity and Markets activities on the headline Group NIM and what
this really tells us. It’s important again to highlight that this impact, whether it’s
positive or negative, is an outcome of certain factors and very rarely a driver orindicator of returns or revenue performance. The impact of Markets on headline
Group NIM is a function of two things: a mix impact and a rate impact.
So, for example, referencing the charts on slide 22, liquidity and Markets
activity has had an adverse impact of 3 basis points on the Group NIM delta inthe second half of ‘23, and all of this was a rate impact. in the first half of ‘23,
the impact was an adverse 8 basis points of which 4 basis points was a mix
impact and 4 basis points a rate impact.
Taking the mix impact first. This is fundamentally driven by whether Markets
interest-earning assets grow at a faster or slower rate than the rest of the

Bank’s interest-earning assets. Because Markets interest-earning assets arelower-yield, if they increase as a proportion of the Group’s interest-earning
assets, this will mathematically have an adverse mix impact on the Group NIM,
and vice versa. You will be able to see this impact from the charts on the righthand side of slide 22. The first half of FY22 and the first half of FY23 wereperiods when Markets interest-earning assets increased substantially as aproportion of Group interest-earning assets and hence there was an adversemix impact on the Group NIM.
Of course, it’s important to underscore that higher interest-earning assets,
which are driven by either higher Markets activity or a larger liquidity portfolio,
brings higher revenue, which can be either NII or OOI, and because theseassets are capital light, a generally higher ROE. As we’ve previously said on
this topic, our assessment of these activities is not based on the mathematicmix impact they have on the Group NIM, it’s based on the impact they have on
ROE and revenue overall. That’s the mix impact.
Then you have the rate impact. The rate impact is driven by the increase or
decrease in the ratio of Markets NII to Markets interest-earning assets. Therecan be a few drivers of this but one common driver of this rate impact is ourMarkets franchise activity when interest rates are higher. Referencing slide 23,
this is really due to the accounting asymmetry between NII and OOI where thefunding cost of positions is recognised as an interest expense in NII, but mostof the revenue arising from this activity in the franchise is recognised in OOI, as
Anshul outlined.
This asymmetry is most pronounced in the commodities portfolio and whenshort-term interest rates are higher. This accounting asymmetry is not unique to
ANZ and some international banks with larger Markets franchise or fixedbusinesses have also referenced this reporting outcome in the last 18 months.
Looking at the charts on slide 23, you’ll be able to see a few things about NII
and OOI. Firstly, you can see the correlation between NII and interest rates in
the chart on the bottom left. NII, and specifically NII relating to commodities, inthe teal blue, is more negative when short-term interest rates are higher,
representing the higher funding cost through NII.

Secondly, you can see that when commodities NII is more negative,
commodities OOI is more positive in the chart above, showing the revenue
offset from the accounting asymmetry through OOI. This asymmetry has a rate
impact on the Group headline NIM but as you can see, this rate impact isn’t
indicative of the overall returns or revenue performance.
For example, in the bottom right chart you can see that this ratio of Markets NII
to interest-earning assets was 33 basis points in 1H22 when total Markets
income was $812 million and revenue on RWA was 3.2%. This declined to just
1 basis point in 2H23 when Markets income was higher, at $958 million, andrevenue on RWA was higher at 3.4%. This ratio of Markets NII to interestearning assets drives the rate impact on Group NIM, but you can clearly see it’s
an incomplete measure of revenue and returns.
At ANZ, this asymmetry is most pronounced in our franchise business via ourcommodities activity. A large component of this is precious metals, specificallygold. As Anshul mentioned, the gold inventories and gold lending in this bookhave a funding cost that is booked as interest expense in NII but earningincome through OOI driven by accounting requirements. When short-term
interest rates increase, as they have done over the last 18 to 24 months, this
impact in our reporting becomes more pronounced. It’s also important to note
there is no outright commodity price risk taken by this activity.
To summarise, there are good reasons why we separate the impact of Markets
when we show Group NIM. These are outcomes rather than performanceindicators. The impact of Markets activities can mathematically be shown as amix impact and a rate impact but these impacts represent an incomplete review
of risk-adjusted returns and revenue because an adverse mix impact on GroupNIM from higher Markets interest-earning assets is generally offset by higher
ROE, and an adverse rate impact on Group NIM that arises from theasymmetry between NII and OOI is generally offset by higher OOI. So, it follows
that our Markets business is set up to optimise ROE and revenue, not NIM or
NII outcomes. I hope that helps and I’ll pass back to you, Jill.
Jill Campbell:Thanks, Romesh, and Kayley, I’ll hand over to you to start the Q&A please.

Operator:Thank you. If you wish to ask a question, please press star one on yourtelephone and wait for your name to be announced. If you wish to cancel yourrequest, please press star two. If you are on a speakerphone please pick up thehandset to ask your questions.
Your first question comes from Jonathan Mott with Barrenjoey.
Question:(Jonathan Mott, Barrenjoey) Hi. Just a question for Mark. Thanks for thepresentation, it’s been very informative. If I take a step back and just think about
the Markets business as a whole, we’ve been thinking about this business as a
$2 billion roughly revenue stream now for probably four years, or maybe evenlonger than that but I think this is our first guidance that’s provided.
Could you talk about the growth in the franchise, how much you’re focused onit, and that this is a growth engine? Should we be thinking that that $2 billion isgoing to grow or is this just an ongoing lower capital-intensive higher ROE thatbuilds a $2 billion revenue stream over the next couple of years?

Mark Whelan:

Thanks, Jonathan. The answer to the question is yes, subject to. I do want to
see it grow, we want to continue to grow it – I won’t use the word conservatively
but in a way where – I think I’ve said to you before I want to go up by thestairwell, not by the elevator because you can go up by the elevator and comedown by the elevator if you don’t grow Markets carefully.
Therefore, when Anshul and I talk about the future of the business, the idea
would be we’d consistently grow revenue subject to us still meeting those return
requirements and therefore, we want to stay well above cost of capital, we want
to be growing the business in a way that supports the customer franchise, andwe are actually growing our customer franchise again now that we have it in I
think good shape compared to what it was in 2016.
We continue to look for diversification benefits, which Anshul touched on, in
Markets to ensure that through the cycles that you see in the economy, we
have enough levers within the Markets business to grow the revenue but also,
more importantly, continue to maintain the ROE.
The benefit of the business to the customers is very well established,particularly in the financial institutions space but for us to continue to grow therevenue, it has to meet those hurdles of high ROE, above cost of capital, andbe driven around the customer franchise, if you like, rather than the tradingbooks. A lot of people associate Markets as a proprietary trading business.

We’re not building ours that way. Long answer but ultimately, yes, I do want togrow it but subject to the return requirements being met.
Question:(Jonathan Mott, Barrenjoey) Can I just have a follow-up on that second part,
because sometimes there are great trading opportunities. For example, you had
a very strong first quarter in that December quarter that’s just been completed
and you saw the US 10-year rally over 100 basis points during that period.
When you see a good opportunity like that, are you ever prepared to increase
your trade VaR to some extent to make a bit of revenue or are you going to sit
back and just let the client activity drive this?

Mark Whelan:

We tend to focus on the client activity first and foremost, but Anshul, you mightwant to talk about how we handle that. It’s a good question.

Anshul Sidher:

Sure. Thanks, Jonathan. Exactly as Mark said, I think there’s a high degree ofcorrelation to the right kind of volatility in the market and the directionality there,
and to customer activity we see. So, what we try and do is take managed risk,
helping clients or customers take advantage of those opportunities, could be on
the asset or the liability side, and VaR out and manage risk direction
accordingly.
In terms of risk appetite, absolutely there’s appetite to take advantage ofopportunities. We just put a customer lens and that underlining of customer at
the centre of that activity while we drive that risk.

Question:(Jonathan Mott, Barrenjoey) Do you want the traded number increase when you
see the balance sheet side tick up when there’s trading opportunities like this?

Anshul Sidher:

Yes, absolutely. Just to underline, we have the opportunity and the flexibility toweigh in on these opportunities and resize the amount of risk we’ve got on, boththrough the balance sheet side, and I would say it is a franchise. Because as I
said, there is a high degree of correlation between the external opportunities
and client activity as well so we tend to get a good degree of positive correlationin that outcome within the business as well.

Question:(Jonathan Mott, Barrenjoey) Thank you.

Operator:

Your next question comes from Matt Dunger with B of A.

Question:(Matt Dunger, Bank of America) Yes. Thank you very much for taking myquestion. Anshul, you talk about building out the Markets capabilities and justlooking at the relative ROEs that you reported in FY23 on transaction banking
around 36% versus the Markets division at 11%, what does it take to improve
the ROE within the Markets division? How are you going to earn a better returnon this investment that you’re making into this business?

Anshul Sidher:

Thanks, Matt. That’s a very good question. I’ll start off by saying, as Mark has
pointed out, in the division there is a diversification of capabilities. Markets bydefinition is both an asset and liability side business. The role which Markets
plays, and as I said in my earlier briefing as well, is ability for the division to beable to flex to both the asset and the liability side of the balance sheet,obviously built around the customer proposition.
Now, that being said, I think that the heart of the strategy is really to deliver
growth and revenue but by growing on the margins the higher-returningbusinesses. For very deliberate reasons, foreign exchange is our largest
business because that is the highest-returning business we have, and we will
look to continue to scale that in the go-forward.
In the other business lines, and I’ll put a customer lens on why we have thosecapabilities, customers deal with ANZ because we bring a suite of capabilities
to them. To give you an example, a corporate customer [unclear] ANZ and[unclear] would want both foreign exchange and rate-hedging solutions.
Our financial institutions client are already the same clients really, are looking
for both rate and credit capabilities. Another example would be almost all of ourcommodities customers are multiproduct customers. So, what customers reallylook for from the Markets business within the Institutional business is the suiteof capabilities which are relevant to them, and which is the lens we put on when
we are looking at the returns on the portfolio.
Now, in the go-forward, the emphasis is to while we continue scaling our corehigh-returning business like foreign exchange, is to grow the fee-based line
within the RWA heavy businesses like fixed income and continue to add into
what are very differentiated commodity propositions, which is not really capitalconsumptive on the margin to grow ROE.

Mark Whelan:

That’s good. I might add there, Matt. The strategy that we’ve taken for thedivision, which is why I did that spiel at the beginning, has been to get the rightmix of our business and slant that obviously to the higher-returning parts of thebusiness. As you call out, PCM is a really, really strong ROE business. For us
to have sustainability, we have to be building that mix also off the customer
base that we’ve got and therefore if you take that same principal into theMarkets business – we’re trying to do that in a divisional sense.
If you take that into the Markets business, we certainly would want to grow theforeign exchange side of it, which is the highest-returning side of it. Spot FX is agreat – if I could choose one product that we do in Markets and only one
product, it would be spot FX. Unfortunately, we can’t just position the businessthat way. It has to be a mix of FX, rates, fixed-income, credit, commodities.
Getting that blend right does sometimes take some time and it also will shiftbased on the customer preferences. We’re doing a lot of work around trying togrow the higher accretive businesses while at the same time get better returns
in the ones that are a little bit more capital heavy. That is a bit of a journey but I
think we’ve done a good job in the last few years. I’d hope that gets better going
forward as well.

Question:(Matt Dunger, Bank of America) Thank you very much.

Operator:

Your next question comes from Andrew Lyons with Goldman Sachs.

Question:(Andrew Lyons, Goldman Sachs) Thanks and good morning. Just a further
question on the back of Jon’s initial question earlier. Mark, you mentioned theopportunity for greater levels of diversification of revenue in the Markets
business, which Anshul also mentioned, would be franchise focused. Can you
perhaps talk in a bit more detail about where they will come from, and just, I
guess, how you will manage the risk of introducing the business to new revenuelines?

Mark Whelan:

Yes, I might start, and then Anshul you can take that. If I look at it from,the choice of customer is really important in that, Andrew. So, while wehave been focusing on the higher accretive businesses in the division, inparticular as you know around PCM. That’s the first step.

The second step is actually to focus on the customers that can deliverthat sort of product mix to, and so you will note in the last five or six
years, particularly, we’ve gone really hard at areas like the financial
institution space, particularly with funds and global funds, domestic
funds, but also banks, because they tend to be using those higher ROE
products.
It is the same across the division in PCM, but it’s also actually relevantto the markets business specifically. On top of that, we’ve also looked
for customers that operate in multiple geographies, and will deal with us
in multiple geographies. Our most profitable customers tend to be thosethat deal with us in other – Australia and New Zealand that’s our door
opener, if you like, but then in one, two, three, four and in someinstances, we’ve got customers dealing with us in 13, 14 countries in theinternational network. They become very profitable because there is amultiplier effect for us both in the type of business that we see with thatmix but also in local markets.
Anshul touched on our local markets’ capability, which is actually quite
accretive for us, and is a differentiator for us. So, it’s getting – it's the
choice of customer that matches the network, but also then the mix ofbusiness that we’re after. So, did you want to add to that specificallyaround markets, Anshul?
Anshul Sidher:

Sure, Mark. So, thanks, Andrew. Maybe just to add to what Mark said,
and making very specific. I think what we tried to do is really acquire
scale in what is a differentiated proposition and it’s hard to online that as
I briefly mentioned in the initial update. We have, what I call, reallystrong differentiated access to liquidity propositions in foreign exchange,
particularly, both in Australia and New Zealand, as well as in Asia, to our
local markets business.
A really strong cross border proposition in our fixed income business,
and what I would call a very differentiated proposition again in thecommodities business. Now, you marry that to a core set of customers
who deal with ANZ consistently and, as Mark said, tend to deal with us
at multiple touch points in multiple countries, would be the focus of thebusiness.

To make it specific in terms of clarity, we only have a local market
business which is almost an annuity business for us now. Very stable tothe cycle of a completely differentiated proposition. We intend to do
more of that, but one focus is going to be a lot more digital delivery inforeign exchange, for example, and internal reach into commercial andretail in Australia and New Zealand.
The second piece would be adding on the more fee-based income lines
in fixed income where the cross-border proposition is unique, and that
includes, besides people, also the securitisation business in Australia.
The third piece is really the commodities proposition. I think we have a
big role to play in the carbon space and the energy space, with thefocus on Australia and Asia. To supplement all of that, Australia does
more solutions with the capability of adding on to our mix in Australia inforeign exchange particularly, and in the rate space in Asia. So, I hopethat gives you a bit of flavour of what…
Mark Whelan:

The only other point I suppose to add there as part of the grossproposition is also to ensure that we do want to selectively grow ourcustomer base, but I would underline selective. It has to meet thecriteria that we’ve outlined before that has a link to Australia and New
Zealand, but also that multiple geographic piece and in the higher
returning sectors. That tends to be where we’re focusing, and we havestarted to pivot to that new customer selection which will help thesustainability and the growth and revenue and return and more
importantly in markets.
So, we’re trying to build that business to remove that annual variability
that you’ve been seeing which upsets everybody. But you can’t take allof that out, because sometimes some years are more volatile thanothers and point to 2020, but ultimately that’s the idea that, outsidemajor events, that’s what we’re trying to get to.

Question:(Andrew Lyons, Goldman Sachs) Thank you for that detail, and Mark,
just while I've got the microphone, I might as well try for one more. YourAGM commentary highlighted conditions in markets that started pretty
well in 1Q, any comments on the extent to which that’s continued into
this second quarter?

Mark Whelan:

Yes, look, I think generally the business has been in pretty good shape.
I mean, we started as I would’ve expected, it’s continued relatively wellacross all the business lines I'm pretty happy. I mean, I'm nevercompletely happy bottom line, but it has gone as we would’ve expected.
You know this business tends to have – and we actually focus on having
a strong first half because this markets business tends to be, if you getaway well, you continue to have a reasonable year. I hope that
continues. You saw that last year, and I would imagine that we will finish
the half okay, and then the second half we’re going to try and take outsome of the volatility you saw last year. Again, that will depend a little biton market conditions.

Question:(Andrew Lyons, Goldman Sachs) Thanks so much.

Moderator:

Your next question comes from Brian Johnson with MST Financial.

Question:(Brian Johnson, MST Financial) Good morning, everyone. Just a few
questions, if I may? Can I just come back to a subtle thing, thedifference between the AGM commentary and what we saw at the firstquarter. So, at the AGM on 21 December, the narrative was that – canyou hear me, Mark?

Mark Whelan:

Yes, loud and clear, yes.

Question:(Brian Johnson, MST Financial) Okay, so the narrative was at the AGM
on 21 December that the revenues were in line with the second half2023 which was $5.1 billion, and that the markets revenues were in linewith the first half 2023, which was $5.75 billion. Nine days later, for thequarter, we basically saw the revenue guidance is now basically, in linewith where it was at the first half 2023.
That implies an uplift of revenue of something like $80 million. I’d justlike to understand, was the commentary at the AGM incorrect? Or
where did the $80 million of revenue – did it come through in yourbusiness, Mark? Or did it come through in the non-markets business,
the nine days?

Jill Campbell:So, it wasn’t that the AGM or the 1Q either of them were incorrect, BJ, it
was the AGM as you’ve said, was half on half comment. We hadn’t
closed off the half, obviously, and you would still – remember, eventhough we were into December, you’re still seeing numbers coming
through. In the first quarter, we’ve given you a PCP comparison
because we thought that was more relevant given the trends that we’dseen in the markets business.
So, effectively, the markets trends, as Mark has just explained, had
continued to be pretty good, and that’s why we thought, a comparison to
the first half, or PCP, given the nature of that business does tend to be
to have a stronger first half than second half, we thought a PCP
comparison was going to be more useful to you.
Mark Whelan:

Yes, I think that’s right.

Question:(Brian Johnson, MST Financial) Sorry, Jill, it is useful, but as I say, it'smaterially different over a period of nine days. I'm just trying to get myhead around, was it in the markets business or in the non-markets
business that we saw the revenue uplift between the AGM commentary
and what we saw at the first quarter?

Jill Campbell:

Well, we’ve given you – in the first quarter disclosures, we’ve given you
a split, effectively, of a comment about revenue more broadly andmarkets specifically, so that would give you that answer, BJ.

Question:(Brian Johnson, MST Financial) That would imply that it wasn’t in themarkets’ business then?

Jill Campbell:That would be the maths.

Question:(Brian Johnson, MST Financial) Right, and is that correct? Mark, is that
correct? Because it's kind of different to what you said today.

Mark Whelan:

Well, no, what I said today, was that we’ve started well…

Jill Campbell:

Yes.

Mark Whelan:…and that came through in the quarter announcements that we made,the first quarter announcements that we made. I think there's an issue
between the Group numbers and markets numbers here.

Jill Campbell:

We split the markets numbers…

Mark Whelan:

If I look at where we were – the start that we had last year, this is why
we went PCP, to the start we had this year, I'm not going to give you theexact numbers, obviously, but the trends were pretty solid, to be frank.

Jill Campbell:So, that’s why we – if you read the first bullet point on slide 2 of thequarterlies that’s why we say, Group revenue was in line with the firsthalf quarterly average with non-markets revenue broadly in line, andthen we give you a comment after that that says, the markets
businesses had a good start to this year with revenues a little better
than the first half. So, the maths of that is pretty obvious, I would’ve
thought.

Question:(Brian Johnson, MST Financial) Okay, that ends up in the markets
business then. Okay, Mark, the second one is that listening to you
today, you’ve built your proprietary pricing system, and I think you reallyshould take a big pat on the back, it's fantastic that you’ve actually got
single systems. I was just wondering, how we reconcile this kind ofincrease counterparty risk that you sometimes see unintendedly in themarkets business?
So, for example, it wasn’t that long ago that we had a one-off credit loss
basically flow through a Singapore trading counterparty in the oil
business, we’d seen one in copper years ago, does this show up in themarkets business or basically in the corporate finance business?

Mark Whelan:

Yes.

Question:(Brian Johnson, MST Financial) How do you run it?

Mark Whelan:

Yes, it's actually – that was actually in the transaction banking business.

Question:(Brian Johnson, MST Financial) Yes.

Mark Whelan:

So, transaction banking is payments cash management, which you
know we’re growing and the other element of that is the trade financebook. That was a fraud that occurred in the trade finance book, so it
wasn’t associated with markets.

Question:(Brian Johnson, MST Financial) Yes, right, and how do you – but, Mark,
when you take a position and you’ve got – in the markets business,you’ve got this counterparty risk, do you somehow hedge that away? Or
how should we be thinking about that?

Mark Whelan:

Yes, yes, Anshul can give you some insight to that. Anshul, do you wantto?

Anshul Sidher:

Yes, hi, Brian. Just to give you a quick flavour, we don’t have any
lending losses in markets, and any customer losses in the context ofmarkets would really be on default on derivatives, okay, and to add such
so that you have the exact background, they have been very tiny andvery few cases. Probably, less than a handful where we had to closeout. How we managed it, I think, there’s a regulatory framework in place
where we have, by definition of the regulator, the need to have an XP orwhat we call a CVA risk. We manage all the counterparties as coming
through derivatives through CVA provisions and then associated CVA
hedging along with that. Now, that gets reported under that CVA
disclosure in the results technically.
So, if you look at that trend, I think it's been a pretty consistent story towhat I just said, that market does not really have any lending or reallycounterparty credit disclosures of any scale or height.

Mark Whelan:Part of that book is also covered through – not all of it, but part of it iscovered through CSAs right, and so if you wanted to go in deeper on
that, BJ, we can actually do that, and it gets quite complicated when you
get down to the credit counterparty risk, if you like, that we have in thebook and how that is managed and hedged. We do some of that,
depending on whether we can get matches to parts of that portfolio in
the external market to hedge it. But it is quite a detailed area, but they
do watch that quite closely.
But as Anshul said, there's very little derivative losses that you see ordefaults that occur in the book, and sometimes we associate it if there isa major corporate that’s gone down and we’ve had FX deals orderivative deals with them that we have to net out and we’re in a loss
position on those, and in a lot of instances, we are actually in a gain
position on it, but it depends on the circumstances.

Question:(Brian Johnson, MST Financial) Fantastic, and Mark, just a final one, if I
may? I understand how you are managing it for a total return between
the non-interest revenue and net interest income, I suppose the sadthing is the market tends to focus just on the volatility there's been in the
net interest income, and the other thing but could I just have a go at towork out whether I've got this correct? Rates rise, we basically see afunding drag through the net interest income, which is offset by again, inthe non-interest revenues?
Mark Whelan:

Yes.

Question:(Brian Johnson, MST Financial) But the other hunk of the markets
business is that when we have a look at where you manage, forexample, the replicating portfolio tractor, we can see bond rates fall, thegain goes – basically, the market to market gain, whatever you want tocall it, that goes through the net interest income line or the non-interest
revenue line.

Mark Whelan:

We’re just working out who’s best to answer this one for you, won’t be me.

Romesh Curtis:

Yes, so that goes through NII.

Question:(Brian Johnson, MST Financial) So, that goes through the NII? So, just to clarify
this because it’s the issue, rates go up, at the short end, bad for NIM, bonds goup, bad for NIM, is that right? With the replicating portfolio or…

Romesh Curtis:

Well, one’s short-term rates and one’s term structure rates, right?

Question:(Brian Johnson, MST Financial) Yes.

Anshul Sidher:

I’ll take a shot at it. So, basically to the bullion business, it’s where you’ve got
two lines, where you’ve got cost of financing that sitting in your NIM while theincome from it which more than covers that NIM and some, comes through NII.

Jill Campbell:

OOI.

Anshul Sidher:

Yes, OOI, sorry.

Jill Campbell:Yes.

Anshul Sidher:

The bond business is – the cost of carrying that in NIM is a completely different
issue. There is no kind of volatility you are seeing where you’ve got two
opposite lines increasing or decreasing the value you are seeing that in thebullion business.

Question:(Brian Johnson, MST Financial) Perhaps I’m just a little bit slow, as we bothknow. But if I have a look at slide 12, we can see maintain capability and lower
interest rate environment, which I think is telling me as long bond rates godown, we get positive gains come through and it probably comes through the
NIM.
But then if I have a look at the other slide on where the replicating portfolio ismanaged, it’s managed in this business where we know higher bond rates aregood for it. I’m just really struggling to work out the dynamics.
Romesh Curtis:

Yes, I think the other piece that’s missing here is that when we manage theliquidity portfolio, we’re effectively hedging interest rate risk, right? The delta
hedging the interest rate risk, so there is no P&L impact from a parallel change
in interest rates that will come through the liquidity portfolio.

Question:(Brian Johnson, MST Financial) But the capital requirement moves around quite
a bit because the embedded gain or loss, correct?

Romesh Curtis:

Yes, and we manage interest rate risk in the banking book for that as well.

Question:(Brian Johnson, MST Financial) Okay, so the ROE moves around? Okay, thankyou very much, gents, really appreciate it.

Romesh Curtis:

Thank you.

Mark Whelan:

Thanks, Brian.

Operator:

Your next question comes from Richard Wiles of Morgan Stanley.

Question:(Richard Wiles, Morgan Stanley) Good morning. I’d just like to ask a question
about the impact of rate movements on the entire institutional revenue book. I’m
not interested in whether it goes through other income or whether it goes
through net interest income, but how does the lower rate environment impact
institutional revenue?
What’s the sensitivity and is the revenue head wind from rates larger in theinstitutional bank than it is in the retail and business banking divisions of ANZ?

Romesh Curtis:

Yes, so there’s a number of parts to that. Look, clearly you’ve seen in theinstitutional business a benefit that has come through from rising rates,
particularly in the PCM business. I won’t give you a sensitivity on that, obviously
we haven’t given that before so I won’t give that today, but you’ve got to kind ofbreak that PCM portfolio into a number of components.

You’ve got a large portion of that book is a term deposit book for changes ininterest rates, prima facie don’t impact margins there. You’ve then got a
proportion of that book that is linked to short-term interest rates, so essentiallycustomers that contractually linked to short-term interest rates, so the delta or
the beta impact is not as big.
Then you’ve got a portfolio where the rates are not linked to cash rates andtherefore you do have some impact there. There is a proportion of that bookthat is impacted by interest rates, but the other thing to note is that there arealso management actions undertaken all the time in that portfolio, including
growing the size of the book to mitigate against interest rate impact, customer
pricing to mitigate against interest rate impact.
Obviously, a lot of customers in the PCM book, what they really value is notnecessarily just the interest rate they’re getting on those deposits, but also thepayments functionality that those platforms are delivering. There’s a ratesensitivity, absolutely, but in addition to that, there’s also a number ofmanagement actions that are taken to manage interest rate sensitivity in thatbook.
Mark Whelan:

Yes. Just adding to that, Richard, the component parts of that deposit basemean that you can’t just look at this as a linear outcome, one way or the other,because we will take management actions, some are more sensitive thanothers and we look to – I think, and I just talking to Jill about this, I think weshould look to provide a little bit more detail to everybody on that and thebreakdown of those deposits at first half ’24.

Jill Campbell:

Yes. No, we appreciate the curiosity, Wilesy, and we’ll look to give you a bit
more help on that at the half.

Mark Whelan:

I think it’s that we should do that in any case because I want to continue to growthat business so it’s best that everyone understands those component parts ofthe deposit book; it’s not just going to be a linear, one way or the other.

Jill Campbell:

Exactly.

Mark Whelan:

But we can actually manage it, which is what we’re sort of building muscle on
as well.

Question:(Richard Wiles, Morgan Stanley) Could I just try to phrase the question a little
differently? The institutional margins went up more, or the institutional revenue
benefitted more, from rising rates earlier in this rate cycle. Was that because
New Zealand rates and US rates, in particular, went up earlier than Aussie
rates? Or is it because institutional was more leveraged to rates than the rest of
the…

Mark Whelan:

Be a bit of both but Romesh, did you want to take it?

Romesh Curtis:

Yes, Richard you’re right. It is more the – it’s a bit of both, but more the former.
In particular, within our deposit portfolio, there is a little bit more rate sensitivity
to dollars, US Dollars, than to Aussie or Kiwi.

Question:(Richard Wiles, Morgan Stanley) And so, when rates go down, do you
think the performance for the institutional revenue versus the rest of thedivision will be influenced more by the timing and magnitude of rate
moves in Australia versus the US? Or is institutional more leveraged
than movements in rates generally?

Romesh Curtis:

No, I wouldn’t describe it as leverage. I think, as you said, there’s a little
bit more sensitivity to US dollars, or the US dollar rate and obviously
again, it all depends on volumes as well.

Mark Whelan:

And mix of the deposit.

Romesh Curtis:

And mix of the deposits as to how that margin moves overall.

Question:(Richard Wiles, Morgan Stanley) Okay. Thank you.

Operator:

Your next question comes from Victor German with Macquarie.

Question:(Victor German, Macquarie) Thank you. My question was along similarline to Richard and I’ll – it’s slightly different though.
Mark, I think in your opening comments, you talked about the changes
in the institutional bank that we’ve obviously observed over the last
couple of years, five years or so, that you’ve made and ultimately, it’s astronger business, which we can see. One of those benefits obviously
came from improved risk profile and lower impairment charges. But
looking at your pre provision line and looking at return on risk weighted
assets at a pre provision level, the real step up in returns as Richard
was alluding to earlier came through in 2023 when rates went up. So if Ilook at sort of five years prior to that, the average return on risk
weighted assets is about 1.5% and it was sort of moving up and down
depending on how strong market income was, but it hasn’t moved up
meaningfully and then we see the step up in 2023.
As we’re looking out into the medium term, what are your observationsin terms of return profile for the business going forward? Do you thinkthat it’s more around opportunities managing risk graded assets while
maintaining or growing pre provision earnings at a slower rate, or do you
expect pre provisions possibly to continue to grow or is it ongoing
benefits through the impairments line that you think will deliver betterlong-term returns?
Mark Whelan:

Yes, Victor there’s a bit there too. Most people feel and we get thisquestion a little bit, that just because rates went up that’s why we hadsuch an improved performance. There’s no doubt that helped, but we’vebeen positioning for this for quite some time and while the rates went up
there were a few other things that occurred.
We obviously had some risk weighted asset benefit through the Basel IVchanges which affected and helped our return on equity. That’s notgoing back regardless of what goes on. That is now set in – well, unlessthe regulators want to change it one more time – but we don’t see that
benefit going away. We’re significantly more capital efficient, not only by
the mix of business that we have in place, but the quality of thecustomer base, which is much higher rated than 2016, but also by theBasel IV benefits that we got in a capital sense, so that will stay with us
going forward.
The second thing I’d say is that we’ve improved the mix of the business,
as we’ve discussed, with more into PCM, more into Markets at a higher
return business which also had some capital impacts previously which
we got a little bit back on, and then less into that heavy loan book.
On top of that though, I’d have to say that even without – if we justlooked at the loans that we’re writing today and the discipline that wehave on the pricing of those, these would be where we were in 2016, we
require and this is a very good argument around actual real cross sell,that those loans get written at or above cost of capital. That wasn’t thecase in the past.
Now, a lot of that has occurred during that last five-year period, so it’s a
combination that I would argue very and that is the case a combinationof factors Victor that got us the performance that we’ve had, which is
why I have a higher degree of confidence that we can maintainsustainable returns above cost of capital compared to where we wereback in 2016.
To your point around the provisions, the issue there for us is that – I’ve
said this before, which obviously affects the returns as well, I’ve said thisbefore, when there was a bad loan, we usually used to have the biggest
cheque and were at the front of the line, right? We’re very conscious ofthat and what we’re trying to do – and I won’t say we won’t take losses
going forward, but by dealing with the right level customers with the rightmix of business you mitigate a lot of that.
Then you apply the fact that we’re pricing for risk better than we’ve everdone and we’re getting that mix of business and you combine all that.
Certainly rates going up helped, but it was only one factor of a numberof them.
Romesh Curtis:

I think the other thing is that the sheer level of technology investment
you’ve made in that business over the past few years and what thatallows you to do, including the harmonisation of the credit decisioning,it’s a quantum leap Victor on where that business was a decade ago.

Mark Whelan:

In addition to that too, I think what we’ve tried to do is simplification of
the tech stack is really important because it allows us now to havefurther opportunities to automate and have much better data, andeveryone talks about data and you think well, how are you actually
going to make any money out of it, the first thing is to actually get it asclean data and actually make it in a position where your customers are
getting a better experience through the systems and we have visibility of
their activity. That’s what we’re concentrating on next.
I get your point. I do tend to get – I don’t get grumpy, but I do get
grumpy a little bit about the fact that people just think it’s a linear
association with rates up and down. We’re trying to get away from that.

It’s certainly part of it and we have to manage that, but it’s not all due tothe fact that interest rates went up.
Question:(Victor German, Macquarie) No and apologies if it came across thatway. I think the point around the risk weighted assets is also a good one
and I mean based on my numbers you’ve got about 25, 30 basis points
benefit from that, but that was industry benefits and I would beinterested in your thoughts whether you see a risk of that being
competed away given that everyone effectively had that step up andtherefore they could potentially compete more aggressively for lending.
It doesn’t sound like that’s the case that you’re seeing currently, thatpeople are kind of pricing for risk weighted assets.

Mark Whelan:

Yes. You broke up a little bit there, but I think under the Basel IV
benefits were only from Australia, right and so, yes, you’re right,
everybody got the benefit of that, but ultimately I think the additional
benefit is that if you look at the risk rated assets, that’s improved
significantly in our book more than others in my view because of thereweighting of the business to those higher rated customers particularlyin the FI space.
Why are we being successful there? Anshul’s business is geared verymuch into servicing those customers, not only in FX but in credit, in local
markets, in local market rates business, which is very appealing to a lotof the global funds wanting to get exposure into Asia and in addition tothat, the payments and cash management services like clearing andothers that we had, so it's a combination of all of those things that put us
in a better position.
But certainly on the risk weighted asset side, we’re targeting customers
that sort of fit that profile I just described to you which means we get therisk weighted asset benefit, but we think we get the highest return inproduct benefit as well.

Question:(Victor German, Macquarie) Thank you.

Operator:

Your next question comes from Andrew Triggs of JP Morgan.

Question:(Andrew Triggs, JP Morgan) Thank you and good morning. Just a
couple of quick follow ups.

First one, just zoning in on rate leverage again, I think you said at theplatforms briefing last year that there was about $103 billion ofoperational deposits. Is that ultimately the number that really is the rateinsensitive component of deposits within the institutional bank Mark?
Romesh Curtis:

No. Andrew, it’s Romesh here. No, not all of that is rate insensitive, sothat’s potentially the total book of the at call deposits, you might callthem, but a large proportion of that the customer rates are contractually
linked to cash rates, so not all of that but certainly a large part of that is
not rate insensitive.

Mark Whelan:

Yes, so we are able to impart or negotiate some of the rates if you likewhich means on the way up and also on the way down.

Question:(Andrew Triggs, JP Morgan) Mark could you give a sense of a split inthat because you’ve given that number before.

Romesh Curtis:

I don’t think we’ve given it explicitly before like that so let’s consider
what we can provide.

Mark Whelan:

Look I think we understand. We’re getting the message you’d like a bit
more detail on that for obviously analysis, but we’ll talk to Jill and see
what we can do to come up with something that gives you – it’s pretty
sensitive for us to do that now, I think we’d do that once we got thesecond half results. I get their point on it Andrew.

Jill Campbell:Yes, we get it Triggsy to give you a bit more analysis on that at the halfwhen we can give you more context. We can’t give you that today.

Question:(Andrew Triggs, JP Morgan) Yes, sure. Thanks Jill. Just quickly a follow
up again on ROE for the market’s business which was in the FY23
presentation. That 11% was broadly similar corporate finance whereas
generally the pitch has been that corporate finance lending is pretty low
and tight margins, low ROE and that cross sell juices up that return.
I can’t understand then why – I would have presumed that the market’s
franchises are earning a better ROE than the lending business. I know
cross sell involves transaction banking and payments as well as
markets, but why isn’t there a bigger difference between the two ROEsof those divisions?

Mark Whelan:

I think we’re in a bit of a journey here with markets. While we’ve been
reshaping the division, we’ve also been reshaping markets around that
customer mix that I talked about, but also that specifically too Andrew
the product mix and getting that right takes a little bit of time.
If you break down what we’ve done within the division, what do I want? I
want – I’d actually like 45% of my business coming from PCM right, nottransaction banking PCM because it is and will always be the highest
returning equity business and then I would go in order of markets,
corporate financial loans let’s call it and trade. Trade actually is a lower
returning sort of ROE business and it moves around quite a bit.
It’s important, because it actually does feed other things into markets,for example, the FX deal could come off the back of it, and we – it’s sortof a product obviously that matches the geographic footprint that wehave.
By the way, we’re working on that, because we’re looking at trade in adifferent light so we want to do more of the supply chain trade and dothat through shared risk portals because we get greater risk sharing
there and it’s actually more valuable for us.
On the loan book, I’ve talked about where we’ve got – we’re pricing theloans pretty much as cost of capital or above, and using that as a ticket
to the dance to a degree, but I want that ticket to the dance to be as
small as possible, so again, we’ll continue to provide it, but we’ll do it ina select perspective.
With regard to the markets, I still think we’re on a journey here. I mean
Anshul is setting across the desk looking uncomfortable because heknows that what I want here is, I want that ROE higher and because I’m
not going to get all of the transaction business without actually – thetransactional banking business, without providing other product services
and so you have to look at getting the mix right and then within the mixof those products, the right mix within the products, which is why Anshul
has focused very heavily on the FX side and the higher returningbusiness of local markets can actually be very profitable for us.
But that again just takes a bit of time, so that’s why I talk about markets
being up by the stairwell. You know, we want to build it slowly,conservatively and on the basis of revenue growth, but more
importantly, ROE growth. It has to have both and I think it’s improved
over the last few years, but it’s still got a way to go from my perspective.
Is that helpful Andrew?
Question:(Andrew Triggs, JP Morgan) Thanks Mark, yes.

Jill Campbell:

Last one thanks Kayley.

Operator:

Your last question is from Ed Henning with CLSA.

Question:(Ed Henning, CLSA) Thank you for taking my question. Look, just reallyquickly. On Slide 14 and just kind of following up on the previous coupleof questions, you know you talk about the markets business growing,
you know, going up the stairwell and growing that $2 billion, but are you
grabbing market share here or is it just the market growing and can you
just touch around the competition. Do you think you can still go up thatstairwell if competition continues to increase in this space?

Anshul Sidher:

A very good question and I think at the heart of what this presentation
was about as well. I think we are looking to focus not just on growing
revenue but growing the returns and revenue and doing it methodically,
which is why we have focused on where we have a differentiatedproposition and looking to scale that, specifically in areas where wehave higher margins and higher returns and also customers who aregoing to be with us sustainably through the cycle.
I think if you look at the capability mixes we had in there, there are partsin which we are leveraging our strengths which are not necessarily
linked to just the growth in the market, but our capability mix allowing us
to take a larger share in the market. That ranges from, as I mentioned,
the differentiated pools of liquidity assets we have in foreign exchange,
both in Australia and New Zealand as well as in Asia and scaling thatwith higher returning business. Looking at the commodity propositions in
a very differentiated way, leveraging our network which is notnecessarily something other banks can do and then thirdly, growing thehigher margin of businesses within the fixed income business.

If you put that together, it’s not necessarily dependent on just market
growth, but I think just getting the scale we think we can in the Margin
business.
Mark Whelan:

Yes. I think Anshul touched there earlier too on the fact that we’ve
invested in and built our own capability and pricing which means we’re
not reliant on other suppliers with this who tend to be taking a bit of ashare of that profit pool if you like through the way that they have to
execute, our competitors may have to execute, so there’s an element ofthat.
I would, and it’s pretty competitive as you’d expect in Australia, right, so
we do see some growth options Ed I think in Australia and we’ll continue
to try and out compete to get a growing pool, so there are a number offactors – technology, quality of people, price capabilities, et cetera, etcetera, but we’ve got an opportunity there.
But internationally, I think with the Asian presence that we have in thelocal markets business, domestic competitors don’t have that, but also
the internationals have some of it and they’re very good competitors, but
we think we can – because we’re focused on this key to the customers
we think we can probably outgrow a little bit there. We’ll see how – andthat has been the case but we’ll see if we can do more.
The final thing too is that we have not been good domestically at selling
into our commercial banking, right, in markets. In fact, I get frustrated bythis because when I rang commercial I tried to change it and I failed
miserably, but the – and this in on our schedule now, particularly aroundsome of the tech spend that we’ve had, we want to take that deeper into
our commercial customer base, so we’re working with Clare Morgan andher team about how we do that and create a better proposition, so I
think we can go deeper into our own market. Then, if we get the rightproposition, perhaps we can also help grow her market share there
which we would have a benefit on, but we’ve been pretty lousy in thatspace Ed and that’s one of the things that I want fixed.

Question:(Ed Henning, CLSA) Okay. Thank you.

Operator:That does conclude our question and answer session. I’ll now handback to Jill Campbell for closing remarks.

Jill Campbell:Thanks Kayley and thanks everyone and we were conscious that there
would be a lot of question and there were. Thanks for those. We’ve run
a little bit over. I am conscious though that some of you might have had
additional questions, so if you ring either Cameron, myself or Pavita thisafternoon and we can – if you need help and we can connect you with
Romesh and Stuart and their team.
Thank you so much for joining us.

Operator:That does conclude our conference for today. Thank you forparticipating. You may now disconnect.

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