ANZ Group (ANZ) 2015 AGM Voting Intentions

Company/ASX Code : Australia & New Zealand Banking Group Ltd (ANZ)
Registry : Computershare Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
10am CDST, Adelaide Convention Centre
North Terrace
Adelaide, South Australia
Monitor : Mr John Whittington
AGM Details / NoM : Thursday 17th December, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

ANZ had a steady year overall in 2015 with net interest income up 6% to $14.6 billion, other income up 2% to $5.9 billion, net profit after tax up 3% to $7.5 billion, dividends per share up 2% to $1.81.  However earnings per share (diluted) were flat at $2.57, credit impairments increased 22% to $1.2 billion (the highest increase, amount, and percentage of any of the four Australian banks), and Return on Equity (RoE) decreased by 11% to 13.1% (third best of the four Australian banks).  The Common Equity Tier 1 ratio is now either 9.6 or 13.2 depending on the basis of the calculation up about 0.75 from last year as the company (like all banks) moves to a higher capital base in anticipation of regulatory requirements.

This result was based on stronger performance in Australia (43% of group earnings, profit up 7%) and Global Wealth (8% of group earnings, profit up 11%), steady performance in New Zealand (16% of group earnings, profit up 3%), and a disappointing performance in International and Institutional Banking (37% of group earnings, profit down 2% on a substantially larger asset base).

During the year, the company raised $2.5 billion at $30.95 in an institutional placement together with $720 million at $26.50 in a Share Purchase Plan.  Whilst we acknowledge that this raised capital cheaply and, for smaller retail shareholders who took up the offer, gave the opportunity to buy more shares than in a rights issue, we were concerned about the fairness of this approach with those not willing or able to take up the SPP being compulsorily diluted with no recompense.

ASA Position
Item 2: Adoption of Remuneration Report

There are a number of good things about the remuneration report and policy:

•    It is generally communicated well with useful information well expressed;

•    The new CEO is on a substantially lower package than his predecessor;

•    From this year equity issued as part of the Long Term Incentive (LTI, called LTVR by ANZ) program is issued at VWAP (called “face value” by ANZ) rather than “fair value” used previously;

•    From this year they have included a measure for LTI where 1/3 of the LTI award is based purely on absolute Total Shareholder Return (TSR);

•    They have a requirement that the Key Management Personnel (KMP) build a holding of ANZ shares to the value of 200% of their base pay over a five year period and maintain that holding whilst remaining an ANZ executive;

•    They have a requirement that directors build a holding of ANZ shares to the value of 100% (200% for the Chairman) of their base pay over a five year period and maintain that holding while a director of ANZ, and that where the director’s holding is below this guideline 25% of their fees will be directed towards achieving this shareholding;

•    ~50% of Short Term Incentives (STIs, called AVRs by ANZ) are paid as equity with half the equity payment deferred for one year and the other half for two years;

•    1/3 LTI is based on comparison with other banks and 1/3 on the ASX50.

Unfortunately there are a number of things we don’t like about their remuneration policies:

•    It would seem that KMP fixed remuneration and KMP STIs are considerably higher compared than its peers for no appreciable difference in performance;

•    STIs are all in excess of target and apparently have been for years to the degree that we may as well consider target STI payment as additional fixed remuneration;

•    LTIs have a three year performance period (cf four for its competitors) with no holding locks which we think is much too short for this type of business;

•    Calculation of STI awards are unclear;

•    2/3 of the LTI award is based on relative TSR with no reference to absolute TSR, ie shareholders can go backwards and 2/3 of LTI is still payable;

•    They are the only one of the big four banks not to provide a table of amounts actually received by KMP during the year.

We must acknowledge the two significant improvements made to remuneration policy this year – valuing LTI issued shares at market price rather than an accounting based fair value (which in practice usually almost doubles the value of the award) and the inclusion of an absolute TSR test for (part) LTI vesting.  These are both very much aligned with ASA guidelines and set a benchmark for the other banks.  On balance we believe that we should support the resolution but would expect further improvements if we were to continue supporting it in future years.

ASA Position
Item 3: Grant of performance rights to Mr Shayne Elliott (new CEO)

This resolution is required as Mr Elliott is a director and the issue of performance rights to a director requires shareholder approval.  The grant to Mr Elliott is purely part of the executive short or long term incentive policies outlined in the remuneration report which we have discussed in item 2.  We believe the incentives are appropriate (especially as they are calculated based on market price and have an absolute TSR test) and that we should support the resolution.

ASA Position
Item 4: Approval of Buy-Back Schemes relating to the ANZ Convertible Preference Shares (CPS2)

This involves pre-approval of two methods of buying back of ANZ Convertible Preference Shares (CPS2) which have their first conversion date on 15 December 2016.  Such a buyback would otherwise require the convening of an EGM.

We see this as a reasonable approach and support the resolution.

ASA Position
Item 5a: Re-election of Ms Paula Dwyer as a Director

Ms Dwyer was appointed to the board in 2012 and has extensive financial services experience and a strong accounting background.  She is a professional non-executive director who is currently Chairman of Tabcorp Holdings and Healthscope (her only other current listed directorships) as well as two advisory boards/panels.

We believe that Ms Dwyer has a heavy but acceptable workload and believe shareholders are well served by her continuing as a director.

ASA Position
Item 5b: Re-election of Mr Lee Hsien Yang as a Director

Mr Lee was appointed to the board in 2009, and has considerable knowledge and operating experience in Asia and was the CEO of Singapore Telecommunications (SingTel).  He is an engineer by training and has experience in telecommunication, food and beverages, property, publishing and printing, financial services, education, civil aviation and land transport.  He is currently listed as Chairman of three unlisted Singapore organisations and is director of three (incl ANZ) listed international companies and three unlisted organisations.

We believe that Mr Lee has a heavy but acceptable workload and believe shareholders are well served by him continuing as a director.

ASA Position
Item 6a: Resolution requisitioned by a group of shareholders to amend the Constitution

This is a non-Board endorsed resolution proposed by the Australasian Centre for Corporate Responsibility (ACCR) and other supportive shareholders (having a holding less than 0.01% of the company shares) to allow shareholders at an AGM to express, in a non-binding resolution, can “express an opinion or request information about the way in which a power of the company partially or exclusively vested in the directors has been or should be exercised”.

We believe that shareholders do not need to change the company’s constitution to express their views to management and the directors.  Indeed the ACCR have acknowledged that their questions last year elicited enhanced disclosure on the issue on which they are focussed (climate change) so their objective was achieved with the current constitution.

ANZ produced a very comprehensive Environment and Social Governance Report.

We do not support the resolution.

ASA Position
Item 6b: Contingent resolution on exposure to climate change risk and carbon intensive businesses

This resolution requests the Board report to shareholders on the company’s exposure to climate change risk and carbon intensive businesses in its lending, investing and financial activities and that the company sets public targets and a timetable for reductions in the extent of that exposure.

This is a non-Board endorsed resolution proposed by the ACCR and other supportive shareholders (having a holding less than 0.01% of the company shares) and requires Item 6a to be passed by special resolution (75% of votes) before it can be put.

For the same reasons as above (ie these views can be made clear, and have achieved acknowledged results without such a change), if the resolution is put we will not support it.

The individual(s) (or their associates) involved in the preparation of this voting intention have a shareholding in this company.

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