Anz Group Holdings Limited · ASX:ANZ
Anz — Investor Presentation (January 2007)
39 slides from Anz's investor presentation, Jan 15, 2007
Slide 1: The Australian economy
The The Australian Australian economy economy Presentation to Economics & Politics students from the University of Delaware Saul Eslake Melbourne Chief Economist 15th January 2007 ANZ Bank www.anz/com/go/economics www.anz/com/go/economics economics@
Slide 2: Welcome to ANZ
2 Welcome to ANZ z Formed in 1951 through the merger of the Bank of Australasia (founded 1835) and Union Bank of Australia (founded 1837) – with antecedents going back to Launceston, Tasmania in 1828 z Australia’s 5th largest listed corporation (market capitalization A$51.8bn or US$40bn as at 31 Dec
Slide 3: The Australian and US economies - some similarities and differences
3 The Australian and US economies - some similarities and differences Similarities Differences z British common law tradition z Scale - Australia less than 7% z Federal system of US population and GDP z No separation of executive z Government accounting for from legislature about one-third of GDP (l
Slide 4: Australia has attained stronger and more stable growth with lower inflation and unemployment
4 Australia has attained stronger and more stable growth with lower inflation and unemployment Real Real per per capita capita GDP GDP growth growth Inflation Inflation 3 % per annum 12 % per annum 10 2 8 6 1 4 2 0 0 61-70 71-80 81-90 91-00 01-06 61-70 71-80 81-90 91-00 01-06 Volatility Volatility o
Slide 5: Australia is one of few Western economies where per capita GDP growth hasn't trended down
5 Australia is one of few Western economies where per capita GDP growth hasn ’t trended down hasn’t Per capita GDP growth, 1950-2005 4 % per annum Australia 5 % per annum Western 3 4 Europe 3 2 2 1 1 0 0 51-60 61-70 71-80 81-90 91-00 01-05 51-60 61-70 71-80 81-90 91-00 01-05 4 % per annum United Sta
Slide 6: Sustained growth, reforms and terms of trade gains have lifted Australians' living standards
6 Sustained growth, reforms and terms of trade gains have lifted Australians Australians’’ living standards Australia’s ranking among OECD countries in terms of GDP per capita 1 Ranking US 3 5 Australia 7 Japan 9 11 13 Britain 15 17 19 21 23 25 50 55 60 65 70 75 80 85 90 95 00 05 Note: GDP is in 200
Slide 7: Recent gains in living standards owe more to terms of trade than productivity
7 Recent gains in Australian living standards owe more to rising terms of trade than productivity Labour productivity as Ratio of export to import % of OECD average prices (terms of trade) 110 % 120 2004-05 = 100 110 105 100 100 90 95 80 90 70 85 60 60 65 70 75 80 85 90 95 00 05 60 65 70 75 80 85 90
Slide 8: Australia's economic reform agenda
8 Australia’s economic reform agenda z Macro-economic stability – control of inflation through establishment of an independent central bank with a flexible inflation target – sustainable fiscal policy based on eliminating structural budget deficits and reducing public sector debt z Financial deregul
Slide 9: The changing nature of Australia's labor market encapsulates the spirit of the reform agenda
9 The changing nature of Australia ’s labor market Australia’s encapsulates the spirit of the reform agenda Union Union members members and and owner- owner- Union Union members members and and managers managers of of businesses businesses direct direct share share owners owners 2.6 Millions 3.9 Mil
Slide 10: Since the mid-1980s Australia has dismantled protection of most of its manufacturing sector
10 Since the mid -1980s Australia has dismantled mid-1980s protection of most of its manufacturing sector Effective rates of tariff protection 40 % 175 % 35 150 Textiles, clothing 30 and footwear All manufacturing 125 25 100 20 75 15 50 10 5 25 Autos 0 0 70 75 80 85 90 95 00 05 70 75 80 85 90 95 00
Slide 11: Australia's auto industry experience illustrates the benefits of reducing trade barriers
11 Australia’s auto industry experience illustrates Australia’s the benefits of reducing trade barriers Auto Auto prices prices in in real real terms terms Import Import penetration penetration 140 2000 = 100 70 % 130 60 120 50 110 40 100 90 30 80 20 70 10 82 84 86 88 90 92 94 96 98 00 02 04 06 82 8
Slide 12: Australia doesn't subsidize rich farmers at the expense of taxpayers and consumers
12 Australia doesn’t subsidize rich farmers at the doesn’t expense of taxpayers and consumers Measures of support for agriculture, 2003 -05 2003-05 Producer Producer subsidy subsidy Consumer Consumer subsidy subsidy equivalents equivalents equivalents equivalents 70 % -60 % 60 -50 50 -40 40 -30 30 -
Slide 13: Australia exports commodities and imports manufactures
13 Unusually for an industrialized country Australia exports commodities and imports manufactures Composition of Australian trade, 2005-06 Exports Imports Vehicles TCF Farm products Services Services Other consumer Other goods Manufactures inter- Minerals, and other mediate ICT metals and goods good
Slide 14: China's global impact on relative prices is hugely beneficial for Australia
14 China’s global impact on relative prices is this China’s hugely beneficial for Australia Long-term Long-term price price changes changes for for Ratio Ratio of of Australian Australian export export Australian Australian exports exports and and imports imports prices prices to to import import pr
Slide 15: China is now one of Australia's top trading partners
15 China is now one of Australia ’s top 3 trading Australia’s partners, and the bilateral deficit is shrinking Australia’s Australia’s merchandise merchandise Australia’s Australia’s merchandise merchandise trade trade with with China China trade trade balance balance with with China China 16 % (12-
Slide 16: Terms of trade gains since 1999 worth A$3,066 pa to each Australian
16 ‘‘Terms Terms of trade trade’’ gains since 1999 have been worth A$3,066 pa to each Australian, on average Real Real gross gross domestic domestic product product Real Real gross gross domestic domestic product product and and income income and and income income per per capita capita 7 % change fr
Slide 17: Australia is one of few countries with which the US runs persistent surpluses
17 Australia is one of the few countries with whom the US runs persistent surpluses US US external external balances balances with with Some Some remaining remaining US US barriers barriers to to Australia Australia imports imports from from Australia Australia 10 US$bn (4-qtr moving total) z Beef –
Slide 18: The Australian and US economic cycles have been unusually divergent this decade
18 The Australian and US economic cycles have been unusually divergent this decade … Real Real GDP GDP growth growth Unemployment Unemployment rate rate 10 % change from year earlier 12 % change from year earlier 8 10 Australia Australia 6 8 4 6 2 US 4 0 US -2 2 -4 0 81 86 91 96 01 06 81 86 91 96 01
Slide 19: Differences in the behaviour of asset markets
19 … in large part because of differences in the behaviour of asset markets … Share Share prices prices House House prices prices 250 Dec 1995 = 100 250 Dec 1995 = 100 (local currency terms) Australia US 225 225 (S&P 500) 200 200 US 175 175 150 150 125 125 Australia (ASX All Ordinaries) 100 100 96 9
Slide 20: Differences in relative exposure of households to different asset classes
20 … and differences in the relative exposure of households to different classes of assets US US household household Australian Australian household household wealth wealth wealth wealth 6 Multiple of annual 6 Multiple of annual disposable income disposable income Residential 5 5 property 4 4 Financ
Slide 21: Australian households have become more financially leveraged than American households
21 Australian households have become more financially leveraged than American households Household Household debt debt as as a a p.c. p.c. Household Household debt debt as as a a p.c. p.c. of of disposable disposable income income of of household household assets assets 180 % of annual 24 % of house
Slide 22: Tax changes in 1999 added to the appeal of geared property investment
22 Changes in Australia Australia’s’s tax system in 1999 added to the appeal of ‘‘geared’ geared’ property investment Taxpayers with rental income Net rental income 14 % of total no. of personal 1.0 $bn taxpayers 13 0.0 12 -1.0 11 10 -2.0 9 -3.0 94 95 96 97 98 99 00 01 02 03 04 94 95 96 97 98 99 00
Slide 23: Australian household finances weren't much affected by the 2000-02 share price crash
23 Australian household finances weren weren’t’t much affected by the 2000 -02 share price crash 2000-02 US US and and Australian Australian US US and and Australian Australian household household net net wealth wealth household household saving saving 6.5 Multiple of annual 8 % of household disposa
Slide 24: With the housing boom over, households are consolidating their finances
24 With the housing boom now over, Australian households are ‘consolidating’ their finances Capital Capital city city house house prices prices Household Household borrowing borrowing 50 % change from Perth 20 % change from year earlier 40 18 year earlier 30 Other 16 cities 14 20 12 10 10 0 8 -10 6
Slide 25: Australian corporate finances were less affected by the 2000-2002 equities crash
25 Australian corporate finances were also much less affected by the 2000 -2002 equities crash 2000-2002 Non-financial Non-financial corporate corporate Corporate Corporate bond bond yield yield sector sector debt-equity debt-equity ratio ratio spreads spreads -- 2-4 2-4 year year A-rated A-rated 17
Slide 26: Business profits and capital spending cycle less dramatic in Australia than the US
26 The cycle in business profits and capital spending has been less dramatic in Australia than in the US US US and and Australian Australian US US and and Australian Australian corporate corporate profits profits business business investment investment 60 % change from year earlier 17 % of GDP (4-qu
Slide 27: Divergent business cycles have seen the RBA and the Fed pursuing different monetary policies
27 Divergent business cycles have seen the RBA and the Fed pursuing different monetary policies z The Reserve Bank of Australia Policy Policy interest interest rates rates didn’t cut rates as aggressively as % pa the Fed in 2001 7 Australia – the ‘tech wreck’ had much less (cash rate) economic impac
Slide 28: The resources boom is keeping the A$ stronger
28 The resources boom is keeping the A$ stronger than it otherwise would have been Economic influences on the value of the A$ Interest rate spreads Commodity prices 0.80 US$ Basis points 500 0.85 US$ 2002-03 = 100 240 A$-US$ (left 0.80 220 0.75 scale) 400 0.75 A$-US$ 200 0.70 (left scale) 300 0.70 1
Slide 29: Commodity prices and interest rate differentials have worked in opposite directions on the A$
29 Commodity prices and interest rate differentials have been working in opposite directions on the A$ Alternative hypothetical scenarios for the A$ If commodity prices If the interest rate spread on the A$ hadn’t risen since June 2001 hadn’t narrowed since July 2004 0.90 US$ 0.90 US$ A$ predicted b
Slide 30: Another key set of differences has been in public finance
30 Another key set of differences between the US and Australia has been in public finance Net Net lending lending by by General General government government net net governments governments financial financial liabilities liabilities % of GDP (4-qtr 60 % of GDP 2 US moving average) 1 Australia Austr
Slide 31: Australia and the US have among the largest current account deficits
31 Australia and the US have among the largest current account deficits in the world … Current account balances, 2006 In In US$ US$ billions billions As As a a%% of of GDP GDP 900 US$ bn 12 % of GDP 800 10 700 600 8 500 6 400 300 4 200 2 100 0 0 US Spain UK Australia France Italy Turkey Greece Portu
Slide 32: The deficits have different fundamental origins
32 … but Australia ’s and the US deficits have Australia’s different fundamental origins … Saving and investment as a share of GDP Australia Australia US US 28 % of GDP (4-qtr 28 % of GDP (4-qtr moving average) moving average) 26 Gross investment 26 The deterioration in the US deficit is largely att
Slide 33: Deficits financed through rather different channels
33 … and have been financed through rather different channels US US current current account account Australia’s Australia’s current current account account deficit deficit and and its its financing financing deficit deficit and and its its financing financing 900 US$ bn - four quarter moving total 1
Slide 34: Australia's longer-term outlook remains promising
34 Australia’s longer Australia’s -term outlook remains promising longer-term z Bipartisan commitment to good economic management – both major parties endorse balanced budgets ‘on average over the course of the cycle’, central bank independence and a predominant role for competitive markets in alloc
Slide 35: Australia's productivity miracle appears to have evaporated
35 Australia’s ‘‘productivity Australia’s productivity miracle miracle’’ appears to have evaporated Possible Possible reasons reasons for for the the Labour Labour productivity productivity productivity productivity slowdown slowdown 4.5 Average annual rate z Stage of the business cycle of change ov
Slide 36: Some continuing issues and challenges for the Australian economy
36 Some continuing issues and challenges for the Australian economy z Fading of some of the factors which have driven rapid growth over the past half-dozen or so years – in particular, the investment boom and rapid productivity growth z Emerging capacity constraints – after 15 years of continuous gr
Slide 37: Strategic and other challenges for Australian banks in the next few years
37 Strategic and other challenges for Australian banks in the next few years z Generating revenue growth – growth in lending to households (50% of total domestic asset growth over past decade) has peaked – competitive / regulatory pressure on credit card fees and margins z Competition in new areas –
Slide 38: Competition and regulatory pressure putting downward pressure on key income sources
38 Competition and regulatory pressure putting downward pressure on key income sources ANZ’s ANZ’s net net interest interest margins margins Banks’ Banks’ credit credit card card fees fees 360 Basis points 1.60 % of purchase value 340 1.40 Other fees Merchant service fees 320 1.20 300 1.00 280 0.80
Slide 39: Households are holding a declining proportion of their assets in bank deposits
39 Households are holding a declining proportion of their assets in the form of bank deposits Components Components of of household household financial financial assets assets 25 % of household financial assets % of household financial assets 50 24 Life offices and pension funds (right scale) 23 45