John McFarlane, CEO, ANZ: It's absolutely incredible, I mean, when you boil it, that we're in business to create a customer and serve a customer, I mean, it's actually so fundamental, why did we forget it, I mean, it's almost inconceivable that that could have happened but that's the reality of what happened. Anyway we have now put the customer at the front of it but, but saying that customers are important is not enough, you actually have to deliver something to customers that they value otherwise they're not going to buy from you and so, in each of our businesses we've been trying to find what is this one thing, or two things, that will differentiate ANZ from another bank providing customer service to them and in our case, it's different in each of the businesses.
Reporter: The market seems to be a bit worried about your Asian strategy, what is the priority in Asia?
McFarlane: Look, the market would worry if we didn't do anything in Asia and the market will always worry when we do something in Asia. Now my view is that if you take the interdependence of Australia with Asia, financially, if we take a ten or twenty year view, we will regret not doing something in Asia. If we take a three year view it doesn't make any difference but over long periods of time we regret that, so we think it's right that we should do it. Now we're in Asia already.. five per cent of our profits come from Asia. I've worked in Asia, I mean I've run businesses there, big businesses there, I know how Asia works. We've paid the price in a sense, over long periods of time in Asia, why don't we reap some of the gains of having done that and we're getting those gains. You know, we've been approached by the Chinese authorities to partner with a bank there, we've been approached by the Thai authorities to partner with a bank there, we've been approached by the Living Bank in the Philippines to partner on credit cards, these are approaches to us. Because we're long term there and we're good at what we do, and I think it's about time we leveraged them but in a very careful way, making sure the value's right, the structure of the transaction is right, not putting all our eggs in one basket, pacing it correctly, and having a diversified portfolio of them. Not having too much of our capital at stake.
Reporter: How many deals are in play apart from the ones that you've just mentioned?
McFarlane: Well in aggregate at the moment there are four deals in play. There's the existing transaction in the Philippines with Pernan Bank; we've got the Co-operative Bank in Shanghai; we've got the potential card deal in the Philippines, and, of course, this approach we've had in Thailand... they're in play at the moment and there's nothing else tangible that's in play at the moment but we would expect over the next two or three years something else will come up.
Reporter: You've said that China is the grand prize, how long will it take for the ANZ to make money in China?
McFarlane: Oh look it takes an awful long time when you take a foreign proposition in China to make money, I mean, it's not unusual for it to be ten or twenty years, and so making money short term is not what that's about. This is about getting a sustainable position in an attractive marketplace over a long period of time that will be valuable.
Reporter: Presumably you're loosing money in China currently?
McFarlane: We're pretty neutral in China but we've actually paid the price, remember it's not long ago since we lost a hundred-million dollars in loan losses in China, so I think we've paid the price now and now's the time to get some of the gain.
Reporter: Do you know to make money in China?
McFarlane: Well .. I think it's harder for foreigners to make money in China than it is for domestic enterprises but let's put it this way, we were approaching it by working with a local partner, leveraging their franchise and leveraging our capability is certainly a very good paradigm.
Reporter: Obviously you'd take heed of the fact that virtually every Australian company that's gone to China has lost money?
McFarlane: You have to think long term about it but remember, the key is not to bet the end the whole of the bank on this, I mean, we're talking about two-and-a-half per cent of our equity based in Asia today. At max over the next few years we're talking about ten per cent, so we're talking about anything between five and seven-and-a-half per cent of our equity incrementally invested .. that is not taking a big risk.
Reporter: There's a lot of speculation before this result about a buyback and now no buyback, why?
McFarlane: Look markets shouldn't be disappointed when they didn't expect the buyback, you know, you should only get disappointed when you expect something and don't get it and we've always said that if we're outside our capital ratios, we'll do buyback. If we're inside our capital ratios, we probably won't do a buyback .. now it is true that we're at the upper end of the range but we were at the upper end of our range six months ago. We took the view though that this is a time to be a little bit prudent on capital ratios .. you know, our Double-A rating matters a lot more than a buyback and therefore, we'll stay in the medium of the upper half of our capital ranges if we can but I think the reality is that if it hadn't been for such strong loan growth in the half, it actually was beyond our expectations, we actually would have been outside our capital range and probably made it another buyback but it was just a whisker inside. I guess that the second half loan growth probably isn't .. it's going to be good but I guess that we'll probably generate excess capital in the second half is when the real decision will have to be made.
Reporter: That buyback speculation would appear to have come from the analysts, do you think it indicates they have difficulty understanding what the bank is doing?
McFarlane: No, no. Look in essence one of the issues that the longer shareholders are measured on short term relative return, and if you do a buyback it tends to be supportive of your price over the short run and therefore, there is in fact some shareholder value to be generated also some risk of a downside to be taken out, so, it's quite understandable why people want more and more and more.. I always think, though it's good to leave something in your back pocket, we can always do a buyback anytime, it's there, you don't have to do everything up front, that's the important thing but I also think that a sustained high dividend growth is more valuable than a buyback as a one off and so we're trying to do both in fact.. we're trying to generate a sustained high dividend growth and probably with some prospect of a buyback down the road.
Reporter: So would there be a possibility of a buyback at the end of the year?
McFarlane: Oh I think there's a good chance of a buyback providing our loan ratios are outside our target range and I think there's quite a good chance that that is going to be the case.
ANZ Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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