Report

ANZ

Operations

ANZ is one of the 'big four' Australian domestic banks: ANZ, Westpac, NAB and Commonwealth. ANZ provides a full range of financial services. Its relative strengths compared to the other big four are in business banking, cards and international banking services. ANZ has the most sucessful international operations of the big four.

In 1970 ANZ merged with the English, Scottish and Australian Bank (ES&A). In 1984, the Bank acquired UK Grindlays Bank plc and in 1989 acquired from the NZ Government, the NZ PostBank Limited.

Wholly owned subsidiaries of ANZ offer a range of other financial services:
ANZ Funds Management provides investment and insurance services
ANZ Stockbroking and ANZ Securities Limited provide personal and corporate stockbroking services Esanda Finance Corporation provides specialised leasing, motor vehicle and property finance services. It is the largest finance company in Australia.

Performance

ANZ Group's operating profit for the year ended 30th September 1996 after tax was $1,116 million. This represented a 18.3% return on shareholdersÕ equity. The ANZ Group has $128 billion in assets and shareholders equity is $6.3 billion. ANZ operates in 43 countries and has 39,721 employees.

In 1996, Australian operating profit after tax was $657 million. Banking services returned a profit of $498 million, Esanda $100 million ANZ Funds Management $59 million. Assets in Australia are $75 billion making up 59% of the ANZ Groups assets.

In Australia, ANZ has 1,744 points of representation, 23,727 employees 1,070 branches, 1,010 automatic teller machines and 17,315 EFPOS machines.

New Zealand

ANZ has a major presence in New Zealand and is the oldest and second largest bank in the country. NZ assets are $17 billion or 14% of ANZ group assets. Operating profit after tax in 1996 was $138 million.

International

Outside Australia and New Zealand ANZ operates in 41 countries and has 259 Branches, 303 automatic teller machines, 11,514 EFPOS machines and 10,055 employees. International assets are $35 billion comprising 27% of group assets.

ANZ has a network of niche banking operations (principally trading as ANZ and ANZ Grindlays) providing trade finance and commercial banking services. The main focus is throughout Greater Asia complemented by an active presence in major international financial centres. International operations in 1996 contributed $321 million to operating profit after tax comprised of:

UK & Europe: $106 million

Asia Pacific: $99 million

South Asia: $36 million

Americas: $38 million

Middle East: $42 million.

Asian operations include full operations in China, Nepal, India, Pakistan, Bangladesh, Nepal and the Philippines. ANZ was recently allocated only one of 10 commercial banking licences provided by the Government of the Philippines. It was the only Australia bank to be allocated a licence. ANZ operates a joint venture bank - PT ANZ Panin in Indonesia.

Directors

Mr J F Ries B Bus, FCPA, FAIB

Executive Director

Executive Director since August 1992 and appointed to his present position in October 1992. Thirty-six years experience in banking with the Group including Managing Director, ANZ Grindlays Bank plc, London (1988 Ð 1990) and Chief General Manager, International Banking (1990 Ð 1992). Age 52.

Mr J K Ellis MA (Oxon) FAIMM FTS Deputy Chairman, BHP. Director since October 1995. Chairman of Sandvik Australia Pty Ltd. President of the Minerals Council of Australia and Executive Committee Member of the International Copper Association Ltd. Age 59.

Dr B W Scott AO B Ec, MBA, DBA Company DirectorDirector since August 1985. Chairman of Management Frontiers Pty Ltd, W.D. Scott International Development Consultants Pty Ltd, Television Makers Pty Ltd and the Foundation for Development Co-operation. Age 61.

Sir Ronald Trotter B Com (Wellington), Hon LLD (Wellington), FCA, Company Director Director since December 1988. Chairman of Toyota New Zealand Ltd and Wrightson Limited. Director of Air New Zealand Ltd, and Wrightson Farmers Finance Limited. Formerly Chairman and Chief Executive of Fletcher Challenge Limited, Director of the Reserve Bank of New Zealand, Chairman of New Zealand Business Roundtable. Age 69.

Mr D P Mercer BSc (Hons), MA (Econ) Chief Executive Officer Executive Director since April 1992, appointed Group Managing Director in June 1992 and to his present position in October 1992. A senior executive of the Group since 1984. Director and Victorian President of the Australian Institute of Company Directors 1994Ð1996. Former executive of Shell International Petroleum Co. Ltd. (1965 Ð 1984). Age 55.

Mr C B Goode (left) B Com (Hons) (Melb), MBA (Columbia University, New York), FCPA, FSIA Chairman, Company Director Director since July 1991, appointed Chairman August 1995. Director of CSR Limited, Pacific Dunlop Ltd, Queensland Investment Corporation, Woodside Petroleum Ltd, Mercury Asset Management Ltd. Former Chairman and Chief Executive of Potter Partners Group Ltd. Age 58.

ANZ Values and Vision

ANZ states that it 'is committed to policies that value and respect our people, base recognition and reward on performance and build open and honest communication throughout the Group.'

ANZ states that its vision is to: 1 Provide the greatest return to our shareholders by achieving sound profitable growth.

2 Be perceived by customers and staff as the best wherever we operate.

3 Have the staff of highest calibre.

4 Excel in the way we work together to make decisions, manage change and get things done. We will achieve this position by the end of 1998 and sustain it thereafter.

Value

We have a strong customer focus and build relationships based on integrity, superior service and mutual benefit.

We strive for profit and sound growth.

We work as a team to serve the best interests of the Group

We are relentless in pursuit of business innovation and improvement.

We base recognition and reward on performance.

We value open and honest communication.

We are responsible, trust worthy and law-abiding in all we do.

In 1992, the then Managing Director Will Bailey stated that the ANZ's board had approved a formal code of ethics and that it would soon be made public. However in 1996 when asked about this Code ANZ could not establish its existence or whereabouts.

Lending Policies It is difficult to determine the major lending patterns of banks as lending arrangements are often understandably confidential. ANZ however acts as bankers and financiers to a wide cross section of Australian industry including the tobacco industry, uranium mining interests, forestry and agri-business. Through interlocking directorates and other networks it has close links to all major sectors of the Australian economy. Similar to all other banks in Australia it does not include any social or environmental criteria in its lending policies.

During the 1980's, all the major banks sold loans to borrowers in overseas currencies (almost entirely Swiss francs). In some cases this created disastrous results for the borrowers due to major currency fluctuations. Customers found that the banks refused to take responsibility for their failure to advise borrowers about the danger of these transactions. The main banks involved were Westpac and Commonwealth, but ANZ was also involved, claiming that they had only written such loans because their customers had insisted on having them and because they were concerned about the loss of customers if they refused. Borrowers have claimed, however, that ANZ like the other banks engaged in misleading and deceptive conduct in representing to them that the risks of borrowing foreign currency was very slight.

There have been a large number of legal disputes by borrowers against ANZ and its subsidiaries particularly ESANDA since the 1980's. Over 400 people have sought to be involved proceedings with the Victorian Credit Tribunal over illegal personal loan documents after the Tribunal ordered ANZ to place advertisements in the press about the loan irregularities. The Consumer Credit Legal Service in Victoria claims that at least tens of thousands and perhaps hundreds of thousands of people have been effected. ANZ claims that the errors were purely technical in nature.

Rapid Change and the Impact on Consumers All Australian banks have been going through a period of rapid change since regulation of the banking sector in the 1980's. Deregulation of the currency and restrictions on overseas lending created a period of irresponsible lending practices by particularly by ANZ, Westpac, the Commonwealth Bank and some of the state banks in the late 1980's. In 1987, the Australian Financial Review reported that ANZ had approved a loan of $1 billion 'over the phone' during the takeover battle for BHP. In 1992, ANZ reported a loss of $578 million and made a fresh provision of $1.9 billion mainly to provide for non-accrual loans and the writing down by $288 million in the value of its own property. The property write downs included $120 million off the value of its own head office in Collins Street Melbourne.

ANZ at this time lost money not only lending to large development projects but also to small businesses and has since that time contracted its small business lending and focussed more on housing lending.

In 1994 the Australian Shareholders Association forced ANZ, for the first time in its history, to conduct a poll of shareholders at its AGM. The Shareholders Association attempted (unsuccessfully) to block a motion by the ANZ Board to forgive loans made as part of a senior officers share incentive scheme. In this scheme money is lent by the company at lower than market rates to enable executives to buy shares in the company. The poor share performance of the company had however made these loans unprofitable for the executives and ANZ was seeking

The idea of having to manage change and operate in a rapidly changing environment has very much become part of the modern bank culture. Much of this pressure for change is because of changes in technology and increasing competition in some parts of the banking industry. Competition in particular has emerged in the housing loan market, in computer processing and the credit card market. Low inflation and low interest rates have cut what were once fat interest rate margins between borrowers and lenders. A key factor in the changes in the banking sector is customers increasing willingness to use alternative methods to complete their banking transactions. These methods to date have been ATM's, EFPOS and telephone banking. ANZ like other banks is now looking at new alternatives including on-line (internet) banking and the use of smart cards.

In Australia, ANZ are centralising back office processing functions including telephone banking, customer enquiries and loan applications. In the business sector, ANZ a comprehensive electronic banking services called 'ANZ Online'.

While these changes are 'further freeing branch staff to focus on customer sales and service' they have also meant a reduction in staff which is causing considerable industrial unrest as detailed below. It has also meant a rationalisation of bank branches. It is likely that ANZ will continue to rationalise its bank branches over the next few years.

ANZ like other banks, has also reassessed its bank charges. The banks have sought to avoid cross subsidisation whereby small account holders are effectively subsidised by other customers. Theynow claim that in the face of new niche competitors who do not provide full service banking or a branch network, changes, including bank fee increases are inevitable. ANZ suggests that it needs need to tailor products, prices and service levels more closely to customer needs'. and claims that it has acknowledged community expectations as reflected in the report by the Australian Prices Surveillance Authority. Like most other banks has be it somewhat reluctantly, introduced a 'basic banking or no frills banking product.

Like other banks ANZ has reduced its rural and suburban bank branches with a resulting loss of amenities for consumers. ANZ has stated that it considers carefully the impacts on the local community before closing branches and always seeks to ensure that alternative forms of banking are available to those effected. These alternatives include agency arrangements, ATM's and EFPOS facilities. Closure of rural branches in particular can have major economic impacts on communities as well as creating social hardship. It is often those least able to cope with such changes that are most effected.

ANZ in its submission to the Wallis Inquiry has stated that it supports further mergers within banking sector. This would create even less choice in the banking sector possibly with two big banks instead of four and further rationalisation of regional banks. This would inevitably result in an even greater escalation of the closure of branches due to bank mergers, with no necessary assurance of any increase in efficiency or offsetting benefits for customers.

The Australian Consumers Association in its submission to the Wallis Inquiry in 1996 highlighted very clearly some of the banking problems facing vulnerable groups in the community:

3.1.1 Greater direct participation in the finance sector Since the early 1980s there has been a broad trend for consumers to take greater responsibility for their own financial risks and financial well being. This trend is accelerating. The result is that consumers have to participate more often, more directly and more deeply in the financial services market.

This trend is partly an outcome of government policy, partly a result of demographic and workforce changes. Policy factors include the desire to reduce government outlays, to target financial assistance more narrowly at low income earners, and to increase national savings. Broader demographic and workforce factors that have driven this trend include the aging of the population, the increase in women's participation in the workforce and the increasing flexibility and uncertainty associated with employment.

Consumers are being encouraged and forced to take on this greater direct responsibility for financial management. The most obvious and important example is the new superannuation system. Other examples (many more could be cited) include: the greater role that individuals are being asked to play in funding their (and their children's) education, especially at the graduate and post-graduate level;

the expansion of general insurance products, and the more explicit requirement to take out such insurance (eg compulsory third party car insurance);

the increase in persons with retirement (or retrenchment) packages seeking suitable life time investments;

the increasing risk that consumers must bear in using new technologies in the finance sector; and

the high-profile encouragement to participate in major privatisations and share floats.

Consumers now have to more regularly make important decisions about long-term investments, insurance products and credit products that were not envisaged at the time of the Campbell Inquiry. More consumers are participants in the finance market, many of them very inexperienced and lacking in knowledge. Allowing for cyclical factors, a greater proportion of household expenditure is devoted towards financial products and services.

In this environment it is more critical than ever before that consumers can have confidence in the financial services marketplace. Now is not the time to be reducing essential consumer protection - rather, it must be made more effective and efficient. The quid pro quo of asking consumers to take on a greater burden of financial management is that finance sector regulation must ensure that they can get access to necessary information and are protected when things go wrong.

3.1.2 Access, equity and vulnerable groups

This trend is not being felt evenly across the community. Some groups are experiencing greater difficulties in taking on the greater role being asked of them or forced upon them.

The decline in access of many rural communities to basic financial services seems likely to continue.

The needs of older people in the finance sector must be taken into account as the population ages.

New technologies will not be suitable for all consumers and, to the extent that they displace existing distribution mechanisms, access issues will have to be taken into account by regulators (in consultation with industry and consumers).

there would be rapid escalation of the closure of branches due to bank mergers, with no assurance of any increase in efficiency or offsetting benefits. '

The Australian Consumers Association submission to the Wallis Inquiry included the following interesting letter from an ANZ Customer:

Dear ACA

Recently we took out a Telstra-ANZ Visa Card (after their recent promotion) which has an interest free period before payment. We normally pay our accounts off on the due date. For the second month's statement we were one day late in paying the bill of $559.40. For this oversight we were charged $11.39 interest. However we are also being charged interest on all of the expenditure since then. Thus the $1000 that we have on the next month's bill is incurring interest at 16% per month or whatever until the cows come home!

Naturally ANZ says that this is all stated clearly in their terms and conditions. No doubt it is and probably very easy to understand in 4 point type style and in some mumbo-jumbo legalistic accounting terminology. The point is that no-one reads these 'standard terms and conditions'. There is no other mention of it on the monthly statement (where it should be) despite their reference to many other items on the back of the statement.

We have had Bankcard and Mastercard cards with Westpac for 20 years and this approach of ANZ at taking money off a so-called customer is the most imaginative that I have seen. The bank is making 3-5% money on the transaction from the seller and then goes to take the buyer through this mirror trick. No wonder they make $2 billion profit per annum.'

International
Currency Trading
The foreign exchange market includes a considerable amount of legitimate and necessary trading (for example that required to provide hedging contracts for international trade). Much of international currency dealing is solely speculative and part of a global market rhetoric that has prevailed over the social and economic best interest of individual nations and their peoples. Hazel Henderson in Paradigms in Progress likens the currency market to a "a 24 hour global floating casino". In August 1986, John Fletcher, chief general manager of the Commonwealth Development Bank said '

The multinational bankers should never be underestimated in the lengths they will go to and the dirty tactics they will employ in pursuing their profit objectives. The international money market makes a rugby pack looks like play school'. These foreign exchange markets have become financial juggernauts, with the power to inflict enormous and almost instantaneous damage to rational economic planning, particularly to small less developed countries. So large is the international foreign exchange market that, when it begins to move, the momentum it builds up makes it difficult to change direction. In full cry, the money markets can easily absorb billions of dollars. It if becomes clear that governments are intervening in the market, that becomes part of the game.

If dealers believe the will of a small the central bank or government can be broken or that government does not have the resources to pit themselves for long against the movement of prices, they will set about assaulting that country's position, irrespective of the potentially catastrophic economic impacts on the more vulnerable people within that economy., that might result from the dealers' actions.

ANZ is the leading Australian Bank in the international sphere and is an active trader on international currency markets.

Third World Debt
ANZ acquired a $1.7 billion legacy of this world government debt when it acquired Grindlays Bank PLC.

Overseas Banking Operations
ANZ, through its presence in developing countries, assists in building the local financial infrastructure through training initiatives in banking. A five day leadership and management training program has been provided to staff from Vietnamese banks which deal with agriculture, industry development and retailing. Similar programs have also been conducted in China. The mix of staff from ANZ and other financial institutions gives participants the chance to share ideas and build networks which are helpful in the day to day operations of the financial system. Over 400 staff from other banks have now been trained in the programs. ANZ seeks to not only abide by the laws in the countries where it operates but to adopt a high standard of industrial relations and social responsibility wherever in the world it operates.

India
ANZ is involved in an ongoing dispute with the Reserve Bank of India (RBI) over a 1992 Bombay securities scam. This matter is now in its fourth year of arbitration but has yet to be resolved. The ANZ has lodged $235m with the RBI pending the resolution of the arbitration but has not yet charged this as an expense in its accounts. The RBI claims that there was systematic diversion of funds amounting to billions of dollars from the banking system to the individual accounts of certain stockbrokers.

Fiji
In 1995 a member of the parliamentary opposition in Fiji claimed that ANZ and the Fijian government had colluded in unjustly depriving the government of essential revenue in regards to the ANZ takeover in Fiji of the Bank of New Zealand.

Bangladesh
In Bangladesh where ANZ is the major business bank the company has an involvement in the tobacco industry.

South Korea
ANZ is one of 12 overseas banks in South Korea, that has had labour difficulties with unions seeking large wages increases. Westpac previously closed down its South Korean operation partly because of labour problems. ANZ ended up agreeing to a 17% % increase after a protracted dispute.

Privacy
ANZ and its subsidiary Esanda, along with a number of other financial institutions were for many years actively involved in purchasing confidential government information about their clients and prospective clients. ANZ purchased this information for at least 10 years up to 1991 and had paid one individual $1.4 million for this type of information over a five year period.

Environment
ANZ believes that being a good corporate citizen requires recognition of environmental concerns. Two key programs have been launched internally over recent years. An Energy Awareness Program aims to assist staff in the efficient use of energy at their work place, without affecting existing working conditions and customer service levels. The other program is the Visy paper and cardboard recycling and waste management project which began in 1995. The program benefits include reductions in ANZÕs waste management costs in Australia by more than 50%, saving about $500,000 annually,

ANZ appears to have avoided integrating any comprehensive environmental management systems into its operations.

Labour
In 1993, ANZ entered into an enterprise agreement with the Finance sector Union and became the first company in Australia to provide workers with absolute flexibility to structure working hours around individual lifestyle commitments. However industrial troubles that have dogged ANZ Banking Group during 1996 with the Finance Sector Union concerned about the impact of ANZ's restructuring program. Although the bank says it is unable to quantify the impact of its restructuring in terms of staff losses and branch closures, banking the union believe between 100 and 200 traditional branches will disappear and up to 5,000 staff made redundant.

Employees claim that the staff shedding is being handled in a heavy-handed and insensitive fashion. IN NZ there have been wildcat strikes at many of ANZ's operations again around concerns about restructuring and retrenchments.

Donations
ANZ contributes to some of AustraliaÕs leading arts companies. Donations are also made to a variety of medical research, community welfare, education and heritage projects. At the local level, ANZ plays an active role supporting sports activities, ethnic festivals and initiatives in rural areas. ANZ supported the construction of a lecture theatre complex at the world Taronga Zoo in Sydney and in Melbourne supports the Melbourne Children's Hospital. The ANZ Foundation supports a range of charitable organisations, receiving financial assistance from ANZ as well as ANZ staff.

Conclusion
Banks in being granted a banking licence have a privileged position in society which should also require them to act in a socially responsible manner to their customers. Since deregulation of the banking sector the capacity to regulate banks impact on society has been reduced and banks have resisted supporting the needs of the whole of the community particularly the more vulnerable and disadvantaged. ANZ does not differ greatly from the other big three banks in regard to its level of social responsibility. ANZ has the added responsibility of having a major presence in a wide range of undeveloped countries.

Contact:
Vicki Flannery
Senior Manager Business and Community Relations
ANZ
Level 2 100 Queen St
Melbourne Vic 3000
Ph 03. 92735328
Fax 03.92735899

Sources Consulted: ANZ Annual Reports 1995-6, Sydney Morning Herald, Financial Review, Australian, ABC Radio Transcripts, Business Review Weekly, Australian Business Monthly, ACA Submission to Wallis Enquiry, Which Banks are Still Bastards- Foregn Currency Borrowers Association, The Money Masters by Ian Reinecke.

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