ANZ Group Holdings Limited (ASX:ANZ)

Earnings Call: H1 2021

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May 5, 2021

Good morning, everyone. I'm Jill Campbell, Head of Investor Relations for ANZ. Thanks for joining us by phone or webcast for the presentation of our half year 2021 financial results and we're presenting them from Melbourne. I acknowledge the Wurundjeri and Boonwurrung peoples as traditional custodians of the land we stand on here at Docklands. I pay my respects to elders past, present and emerging, and I also extend that respect to any Aboriginal or Torres Strait Islanders who are joining us today for this presentation. Our results materials, all of which were lodged earlier this morning with the ASX are also available on the ANZ website in the shareholder center. A replay of this presentation will be available via site, our website from mid afternoon. I'll talk more about Q and A procedure when we get to that point of the proceedings. But ahead of that, a reminder that if you do want ask a question, you're going to need to do that by the phone. Our CEO, Shane Elliott and acting CFO, Shane Buggle will speak for around 30 minutes and then we'll move to Q and A. With that, I'll hand to you, Shane. Thanks everybody for joining us. We'd hope that we would be able to see you in person, but we felt it was appropriate To maintain the virtual option, for the moment. But hopefully we get to see you all at the full year result. Given the success Australia and New Zealand has had in managing the health and the economic impact of COVID-nineteen, it can be easy to forget the pandemic is not yet behind us. Perth's short lockdown last month reinforced we still have a way to go. While 3rd and 4th waves in different countries remind us How quickly things change and of course how bad things can get. India, a country in which we have a deep history, is having a particularly distressing time. We've many staff, family and friends in India and we're actively supporting them as they endure a truly tragic situation. We announced last week a donation of $1,000,000 to World Vision's India COVID-nineteen appeal, as well as setting aside a further $1,000,000 to match customer and staff donations. I'm sad to advise we've had colleagues tragically pass away in India recently after contracting COVID in their local community. As CEO it hits home when you hear this news and we're doing everything that we can to provide support to their families as well as other team members. It reminds us all of the human impact of this pandemic. But I've been inspired by the resilience and determination of our team in India and the support they have received from their colleagues around the world. Despite the difficulties, our team there keep turning up each day, doing their best for ANZ and our customers. The major difference being that they're doing it from their living rooms rather than our offices. In Australia and New Zealand the situation is clearly more positive. While lockdowns continue to be a factor, the economy is tracking well and businesses are feeling more confident. Airlines have reported a surge in demand and it was terrific to see the opening of the trans Tasman bubble. Melbourne even hosted the world's largest sporting event since the pandemic began with 78,000 people at the MCG. Now if you reflect back to our full year results in October, A time when Victoria was just emerging from a 4 month lockdown, it was looking unlikely there would be anybody in a stadium by April. Likewise from ANZ's perspective, the possibility of releasing $500,000,000 in credit provisions so soon would have been equally optimistic. But a faster economic recovery along with the work over the past 5 years to build a better, stronger bank, our disciplined approach to capital management and the work we've done to improve our culture has us well placed heading into the remainder of 2021. In fact, we've never been stronger. Our balance sheet is in great shape and we still have almost $4,300,000,000 in reserve If conditions deteriorate. This means we have the capacity to support customers who are still doing it tough While looking for opportunities to grow our business in our targeted segments and delivering fair and decent dividends to shareholders. As you know, the loan deferrals offered by the banks in cooperation with regulators and the government played an important role in the overall economic recovery. Put simply, they achieved what they were designed to do, to buy people time. And our customers use that time wisely. Now to illustrate that point, of the 121,000 deferrals we provided to homeowners in Australia and New Zealand, Only 2% have been transferred to our specialist team that help people in financial distress. Our aggregated data of course does not tell the true story of a business or a household facing tough times. And we know there are still too many people doing it tough, such as in the regions heavily reliant on tourism all businesses catering to international students. Now one of the benefits of our simplification strategy and the lessons of the Royal Commission is that we have the financial strength, the commitment and specialist teams in place to continue to support those businesses While facilitating the economic recovery that is underway. Now you'll see from our media release and the chart pack that we posted a statutory profit Of $2,940,000,000 Before tax and provisions, cash profit was down by 10% compared with the previous half. This was a very good outcome in a difficult economic environment. The impact of COVID on so much of our result Can make it difficult to see the underlying strength of our business, so let me focus on where I see that strength. Core banking revenue was up 3%, while we improved our position with targeted customer segments. Trading revenue did normalise, but after an exceptional 2020 result. Our disciplined approach to expenses continued With costs down around 2%. Margins across the group were up for the first time in a decade, While return on equity is heading in the right direction. With an ROE of 9.7%, we are clearly not declaring victory. However, I would point out the additional capital we hold today above the 10.5% unquestionably strong CET1 benchmark equates to around 140 basis points of ROE drag. Capital generation was again a feature of this result With 110 basis point improvement in the half. Our already strong balance sheet and effective management Through an incredibly volatile period meant we were able to lift the dividend to 0.70¢ fully franked, A level more in line with our targeted long term payout ratio of 60% to 65%. We don't however think about the dividend in isolation. With such a strong capital position the Board does have the flexibility to actively consider returning surplus capital to shareholders in the future once the outlook is a little clearer. However, We will always balance maintaining an appropriately strong balance sheet with the importance of capital efficiency. Now moving to some of the performance highlights of the half. We continue to demonstrate strategic discipline and execution excellence. As I've talked about before, we're focused on a few key things: helping people save for, buy and own a home start, run and grow a small business and helping companies who move goods and capital around the region. Pleasingly the businesses central to our strategy all performed well. Home ownership is core to what we do And I've been satisfied with the turnaround of our business in Australia while we continue to lead the market in New Zealand. In Australia, we grew in our targeted segment of owner occupiers and maintained our high quality lending standards without growing cost. As we sit here today we've regained our place as the 3rd largest lender adding more than 92,000 new home loan accounts this half in Australia. It was a similar story in New Zealand, where we grew faster than the market and remained firmly in the number one position. Now challenges remain in Australia with home loan turnaround times, particularly in the broker space Given the ongoing growth in applications. Now while we had almost doubled our assessment capacity, The new business we attracted regularly, regularly exceeded capacity. That means our assessment service levels in recent times have not been where we need them to be. We know we need to improve And we're investing in all stages of our processes. Now increasing the use of automation will be a key factor. And the benefits of automation are best highlighted By how we assess applications through our branch network, where 2 thirds of decisions are automated already and customers are receiving a first decision on average within 2 days. Looking ahead, We expect growth to moderate in the second half as customers pay down their debt faster. Now that's good for the economy and good for our customers. It's equally critical in helping customers own their home faster. As you look further ahead, We would expect slowing population growth will begin to have an impact on demand in Australia and New Zealand. Moving to another core part of the strategy, helping people start, run and grow a small business. This is a great area for us and we love small business. They are highly diversified and have good connection with our retail franchise. Our SME business in Australia is a little bit different to our peers. We've got about half a 1000000 customers, of which only a third have borrowing needs. Getting paid as quickly as possible It's really important for small businesses, which is why we announced a partnership in December with Worldline to provide world class payments technology Through a new joint venture. It's interesting to see the significant shift in customer payment behaviour away from cash and towards digital. This accelerated during COVID and while still early days it appears to be a permanent shift. That means we have an even greater need to provide our customers Now for those that need it, we're also making it easier for small businesses to borrow with the formal launch later this month of ANZ Go Biz. GoBiz has been in pilot for a few months and it allows customers if they choose to plug their accounting software straight into our systems So we can understand their financials almost instantly and approve working capital loans faster. We've also digitised processes in the back end. Now it works with all major accounting packages, Xero, MYOB and QuickBooks, which cover about 70% of all small businesses in Australia. Go bids will be available to customers more broadly, just as we are starting to see a pickup in demand for lending. Effectively we're reducing the time it takes to get the money in the hands of small businesses from 30 days to 4 days. And in these volatile times providing small business with rapid finance allows them to respond quickly and effectively to any new opportunities. Now to look at institutional, where we help companies move goods and capital through the region. Overall institutional customer revenue was solid, but trading revenues reduced after an exceptional 2020. I'm particularly pleased with the hard work we've done to derisk and focus institutional over the past 5 years and that it's paying dividends. Margins were up, which offset lower lending volumes and our disciplined customer selection during that time protected the bank well. It has also positioned us well for future growth as our target customers here and globally have adapted fast, Which is seeing more of our institutional customers strengthen their market position and their balance sheet. Importantly, we're also processing much higher volumes in institutional, particularly for other financial institutions while reducing our costs. Providing our processing power to other financial institutions globally is now a core strength and driver of growth for ANZ. Take the new payments platform in Australia for example. Since it launched, there've been 11 mandates to run NPP for other banks and we've won 10. We continue to expect to see significant growth in this platform for years to come as more Australians seek the benefits of real time payments. And providing platforms for other banks to use is a natural evolution of our institutional business. It provides a good annuity stream And it's something you'll hear us talk more about in the future. Now finally, in addition to prudent stewardship of shareholders' funds, Our approach to cost management has been a critical element of our strategy today and it will continue to be so. We have a track record of simplifying the bank, clarifying who we service, reducing what we do and making processes simpler. That has increased our resilience, improved customer outcomes and has already delivered $1,300,000,000 in cost savings since 20 A 15% absolute reduction. Now this is over and above the $900,000,000 of benefits driven by divestments. And while we made a strong start, there's more to be achieved, but we have strong momentum. And I should point out it's as much about the shape or the composition of the cost base than just the quantum. The reality is the shape will change with regards to being more variable, in the area of process streamlining, increasing self-service and automation. While we don't have micro plans to solve every problem and find every dollar, we've been operating a robust, agile and disciplined program That we call accelerated strategy since late 2018. That accelerated strategy program currently oversees around 100 and initiatives that we're continually refreshing with clear executive committee accountabilities and short term delivery cycles. This includes weekly updates with me and regular updates to the Board. The cadence of delivery has improved And we are building a stronger execution culture across the bank as a result. And that gives us the confidence that we can further reduce The cost of running the bank while delivering better and more contemporary services for customers, further increasing resilience And importantly, providing sufficient space for us to continue to invest for long term and sustainable growth. Now in 2018, in response to a question, I suggested that successful execution of our strategy Could result in a future cost base of around $8,000,000,000 It was never a target in and of itself, But an aspiration for what a simpler, better bank would cost to run well. We continue to believe that based on our track record to date And the opportunities we see. Setting targets is easy, delivering them is hard. In fact targets can be dangerous. We could easily achieve $8,000,000,000 by under investing and focusing on the short term, But we're not doing that. In fact, our level of investment has never been higher. And in order to build a sustainable business, We need to retain the capacity to invest where we see growth and opportunity. In FY 2020, looking through large and notable items, we spent $8,600,000,000 Now at a very high level that is split into $7,600,000,000 on day to day run the bank costs and $1,000,000,000 Being the operating expense impact of our change the bank investments. While we cannot predict the future environment, Based on the work already done, the opportunities in planning and development and our confidence in the accelerated strategy framework, We imagine our future cost base will be closer to $7,000,000,000 to run the bank, while still supporting an investment spend at the same level as today, Bringing the reported cost base to around $8,000,000,000 by the time we exit FY2023. Now getting from here to there will not be easy, but it wasn't easy getting from $9,300,000,000 from a standing start to $8,600,000,000 either. Yet we delivered that despite absorbing a $400,000,000 uplift in annual investment spend. Specific initiatives already underway will likely deliver about 2 thirds of the challenge And our accelerated strategy program is focused on further closing the gap. Now we apply the same agile principles to this challenge as we do in running much The bank breaking the work into short cycles and bite sized pieces, empowering the teams, testing and learning, resetting and backing those teams that deliver results. Now you can do the maths yourself and assuming a little bit of inflation, Closing that gap means we need to deliver the $600,000,000 in the initiatives already underway and find a further $300,000,000 over the next 2 to 3 years. Now some of you may prefer we set a hard and fast target and set out a spreadsheet on how we get there, But life and business is more complicated than that. This will not be a straight line. In some cases we may actually spend a little faster to realize the benefits quicker. This half for instance BAU costs were again down But an increase in investment spend in the second half may result in expenses being up around 1% to 2% at the full year. There are some additional slides in the pack, which I'm sure you all have questions about a little later on. But I wanted to be clear here, our ambition is to build a better bank. We believe that will result in a faster, lower risk, better bank for customers that costs less to run. But we're not blindly targeting a cost number just for the sake of it. However, my team and I are very conscious of the value of executive accountability and credibility and we will continue to prudently manage shareholders' capital and expense dollars And update shareholders regarding outcomes. So in summary, ANZ is in a strong position both financially and operationally. We've improved our culture and our people are more engaged than ever before. We have relationships with great customers Who by and large have come through the pandemic in good shape. There is more to do, but I'm excited about what the future holds. We've got the financial strength and the team in place to take advantage of future opportunities. I'll now hand over to Shane to cover the financial result in more detail before making some closing remarks. Thanks, Shane, and good morning, everyone. As Shane said, we managed through COVID well. We've supported customers, strengthened our balance sheet and continue to invest for the future. All this has been done to build a simpler, better bank. The efforts of the past year and indeed the past 5 years are evident in today's result. This half, cash profit was up 28% and return on equity increased to 9.7%, reflecting the strength of our diversified franchise, management actions And the improved economic outlook on credit provisioning. EPS grew 27%, in line with cash profit And without dilutive equity raising. This is a very good outcome for our shareholders. Our pro form a CET1 ratio is 12.5%, Placing ANZ around £7,000,000,000 above APRA's unquestionably strong benchmark. It has been a well managed result in extraordinary circumstances. Given the sheer scope of this crisis, some economic uncertainty remains. However, the first half result has given the Board the confidence to pay an increased interim dividend of $0.70 per share fully franked. I'll step you through the key components of the result in 2 parts: first, our business performance then how that business how that performance has improved the quality of our balance sheet and strengthened our capital position. As I mentioned, cash profit was up 28% this half. The key factors driving the result were income in our core banking businesses was up 3%, with higher margins across all businesses as well as strong growth in our home loan businesses in Australia and New Zealand. Markets income, while strong, was lower half and half as market volatility and customer activity normalized. We were again rewarded for our discipline and costs, and as Shane said, we continue to invest in the future. And credit provisions fell, reflecting a significantly improved economic outlook. Large and notable items, which are included in both cash and statutory profit, negatively impacted our results this half. We released information on these last Friday, So I'll leave further discussion for Q and A. It's worth noting though that these changes were largely capital neutral. I'll now step through each component in a little more detail. Headline margin was up 6 basis points this half Or 3 basis points on an underlying basis. This is the first time we have achieved an increase in reported margins in a decade. The outcome is consistent outlook provided with the full year 2020 result and again at the trade need update. The impact of low rates on capital and replicated deposits Was negative three basis points. There was another 3 basis point dilution from holding higher liquid assets, which enabled us to reduce our reliance on the RBA's committed liquidity facility. While this was a negative for margin, it's a positive for returns. Asset pricing was up 2 basis points, reflecting improved institutional lending margins. That was partly offset by ongoing competitive pressures In our home lending business. We also saw mixed benefits this half. The largest drivers were lower wholesale funding levels and deposit mix from higher alcohol deposits, which were up 5% on average. Lastly, we benefited from managing deposit pricing across all our businesses As well as lower wholesale funding costs. Together, these drove a 4 basis point margin benefit. So if we turn now to the outlook for margins. 1st, low rates will continue to have an adverse impact on earnings on capital and replicated deposits, But yield curves have steepened in recent months, so we expect the impact to moderate to around 1 basis point in the second half. We also expect competition and customer fixed rate switching in the Australian home loan business to persist. That will continue to place pressure on asset margins. Over 40% of Australian home loan lending flow in the first half was in fixed rate loans across 1 to 3 year tenants. While deposit system growth was strong this half, this moderated somewhat in the second quarter of the higher base. Customer behavior continued the recent trend to our call deposits and away from term deposits during the half. And this trend may persist if customers continue to prefer flexibility while interest rates remain low. Wholesale funding costs are expected to reduce further in the second half. They'll benefit both from maturing debt and further drawdown of the RBA's term funding facility. We expect to see benefits from the first half deposit pricing flow through the second half. However, the opportunity for further deposit pricing is now more limited. Turning to our Retail and Commercial business. Revenue was up 2% this half in Australia Retail and Commercial. This increase was driven by active margin management and strong home loan growth. Volumes grew, benefiting from strong fixed rate lending flow. Volume growth moderated in the 2nd quarter as we prioritize margin over volume. We finished this half with a strong application pipeline. The way we think about balance sheet growth is through a range of perspectives: margin management, Including our response to ongoing intense competition portfolio mix and risk appetites with a preference for owner occupied The rate of customer repayments, which remain elevated as customers choose to pay down the mortgages faster, while rates remain low customer preferences for all set accounts, which this half were up £3,000,000,000 and critically, as Shay mentioned, turnaround times. Unsecured lending volumes in Australia were slightly lower in the first half. We saw some stabilization later in the half with higher credit card spending. In our commercial businesses, volumes were also subdued as customers showed caution in uncertain conditions. In our New Zealand Retail and Commercial business, we've experienced record levels of housing growth this half, with volumes up 7%, leading to market share gains. Deposit volumes were also up strongly, funding the lending growth. Macro potential restrictions may see this home loan growth moderate in the second half. Moving now to our institutional business. Our long standing focus has been to improve the risk adjusted returns from our institutional business. This half continued that underlying trend With the division Generation Economic Profit. Improved risk adjusted margin was a highlight in the half. Excluding margins, institution revenue was down 2% FX adjusted, but that fall was not uniform across the division. Corporate finance revenue was up 2%, with strong front book lending margins and improved portfolio mix. That margin improvement was partly offset by lower lending volumes as customers repaid COVID liquidity lines. Transaction banking revenue was down 7% due to the continued impact of lower interest rates on our payments and cash management business. The impact of lower rates has now largely worked through that business. Meanwhile, our trade business was affected by subdued global trade conditions, But we did see a pickup in volumes later in the half. Markets revenue was strong €1,000,000,000 Even so, it was down compared to the well above trend outcome in the second half of last year. Surplus system liquidity and lower market volatility Led to reduced customer demand for hedging this half. The stability of markets franchise revenues month in, month out is a feature of that business. The investor deck now includes additional analysis of markets revenue by product. Looking ahead for Institutional Business, We anticipate improving domestic economic conditions could mean higher business investment and M and A activity. Our business is well placed to benefit in this scenario. As we've said previously, we resource our markets business as a circa €2,000,000,000 revenue business. It's clearly demonstrated it can flex up Without taking on additional risk or resources when conditions and customer behavior allow. As Shane mentioned, we have a strong track record of disciplined expense management, and we continued that trend this half. Our Run the Bank costs were again down, while absorbing some elevated COVID related costs. And at the same time, we continue to invest at record levels. Adjusted for FX movements, total costs were down 1% for the half after absorbing inflation of £25,000,000 our Accelerated Strategy program, which Shane spoke to earlier, contributed to €110,000,000 of Run the Bank productivity benefits this half. The investment in digital channels, process automation and refinements to our customer coverage model helped reduce the average Run the Bank Feet by 1%. The optimization of our property footprint reduced premises costs. We renegotiated some of our key supplier contracts, And we continue to simplify end to end processes. These savings helped us absorb an increase in personnel costs, which arose from higher hardship and contact center resources to respond to the extra demand relation to COVID and higher leave costs, including granting staff extra leave as recognition for their efforts during COVID. As mentioned, we continue to invest at record levels. Registry and compliance initiatives made up over 40% of our investment spend this half, with a number of key initiatives such as BS11 in New Zealand expected to reach peak spend levels this year. Investment in growth and productivity initiatives now form half of our spend. These are driving real benefits, not just in terms of cost, but importantly in terms of customer experience and operational risks. Our processes are becoming more straight through and automated with less manual intervention. Around 80% of our investment spend was recognized upfront expenses. Our capitalized software balance is now below £1,000,000,000 a significant drop from historical levels. Looking forward now to the full year, we expect our investment spend to be up around €150,000,000 to €200,000,000 In the second half, as we accelerate completion of BS11 New Zealand and continue to invest in digital and in cloud migration. Our expectation is for BAU costs to continue their downward trend. Overall, this increased investment would result in year on year costs, Excluding large and notable items, but not modestly, around 1% to 2%. Turning to provisions. The improved economic outlook resulted in a net release of €491,000,000 in credit provisions in this half. The individual provision charge of £187,000,000 was well below historic averages. This reflects the strength of the portfolio, The benefits of deferral packages and government stimulus and the impact of the low interest rate environment. The £678,000,000 collected provision release this half was driven by 3 key factors. Firstly, volume reductions, which came largely from institutional customers paying down additional liquidity lines taken out at the beginning of COVID. Secondly, an improvement in the credit risk profile of the portfolio, and that's largely from Retail and Commercial Businesses And lastly, a significant improvement in the economic outlook compared to earlier forecasts. Looking ahead on provisions. The outlook for credit risk rates migration has continued to improve. You'll recall, we anticipated this time last year that RWA migration Could consume 110 basis points of capital over the 2020 21 financial years. We now expect this to be only 10 basis points. This is another very good outcome for our shareholders. However, the level of uncertainty around the pandemic And the impact of unwinding of government stimulus means we need to remain cautious. We believe our collective provision balance of €4,300,000,000 And coverage ratio of 125 basis points is appropriate at this time. Turning to deferrals, which were a major area of focus last year. All loan deferrals packages across Australia and New Zealand have now ceased, With the overwhelming majority of customers returning to payment. Delinquency trends are lower across all portfolios As a result of deferral packages and government stimulus. With these support measures now in mind, we would expect to see the delinquency levels Settle at more normal levels. As you can see in this slide, our capital position strengthened further in the half. As I said earlier, pro form a CET1 ratio is now 12.54%, which is around €7,000,000,000 above the unquestionably strong benchmark. This improvement comes from a combination of factors: strong organic generation from underlying earnings a lower risk weight intensity in our retail and commercial businesses reduced volumes in institutional as our customers repaid COVID liquidity lines and collected provision releases off the back of an improved economic outlook. Our strong track record of disciplined and efficient capital stewardship meant that through COVID, we did not dilute our shareholders with equity raisings. In fact, we remain the only major bank that has reduced its shares in issue over the past 5 years. Shareholders' net tangible assets per share This result shows we have managed the business well through a difficult period. We delivered strong results with good growth in priority markets. Our margin was managed very well, resulting in the 1st margin increase in a decade. We're able to continue our record of disciplined cost management. Our capital position is very strong and our provision levels are appropriate for the current circumstances. With that, I'll hand back to Shane. Thanks, Shane. I was asked at a parliamentary hearing the other day to describe the economy in one word. The word that I chose was recovering. And this is because while economic activity has recovered quicker and stronger than many believed possible, There are still many households and businesses doing it tough. The pandemic is not over and we are concerned about the well-being of our colleagues, Particularly in India, the Philippines and Papua New Guinea. So while we've delivered a good result today, There will be fresh obstacles ahead and we will deal with these the same way this team has confronted the challenges of the past. We will be calm and methodical in our approach. We'll be guided by our purpose. We will balance the needs of our stakeholders. And we will do what is right. It's been a difficult period, but I'm proud of how we responded and what we have achieved. However, we would not have been able to do this without the 38,000 people who've been working hard for our customers. I'd also like to acknowledge our customers, whether it's one of the coffee shops here in Docklands, a large multinational firm or one of our home loan customers. We only exist because of them. And they've all been through quite the journey in recent months. And it's hard not to be impressed With how they've responded to unimaginable challenge. So with that, we'll now open up for questions. Thanks, Shane. Now with the caveat that I know you've been through Q and A a 1000000 times, I'll still take you through this procedure anyway. It's slightly different because we're virtual. The operator will already have told you to cue a question at star 1 on your keypad. I'll introduce you and where you're from. Once you hear your name, go ahead and ask your question. The operator will have your line open. When your turn does come up, if you can try and keep it to no more than a couple of questions. And if there's anything you don't get a chance to get to, the Investor Relations team are, of course, all available through the afternoon. And so with that, I'm going to hand to Andrew Lyons from Goldman Sachs for the first question, Shane. Thanks and good morning. Thanks, Jill. Just two questions, if I may. Firstly, your markets income down 13% on PCP. It does appear somewhat at odds with what we've seen at some of the trading banks around the world in recent weeks. Can you perhaps just talk to the drivers of this and importantly, how you're thinking about the franchise into the second half? And then just secondly on expenses, you've just delivered first half expenses down 3% on PCP on an underlying basis. But you've said that you'll have 1% to 2% growth in full year expenses this year, which seems to imply sort of roundabout 8%, half over half growth in the second half or 6% on PCP. Just in light of that big step up in cost, in light of a broad attempt to get the cost base lower. Can you just talk in a bit more detail around what's going to drive that tick up in expenses in the second half. Yes. Thanks, Andrew. They're both really good questions. And I'll get Mark Whelan to talk about our markets performance. And then I'll ask Shane to talk about expense. Just quickly on expenses though, Shane can talk through it a little bit more detail. But You're right to point out that shift. I think again what we are signaling here is it's really about the composition. So our BAU run the bank costs will continue to be flat to down. The increase we're talking in the year on year is really because of the accelerated investment. And that would that really comes down and I would say there are 3 big buckets of that. 1 is the BS11 work that we are doing in New Zealand which This is like peak spend time, if you will, and that program by and large comes to an end. It's not finished, but the spend piece we have finished in the second half. There was certainly the big lump, that's one. The second is the ongoing work we're doing around digitization. And so that drives real benefits for us. And we want it we're actually going to accelerate that in the second half. And the third is to do with our move, our cloud program, which again is really It's a great program and will drive real benefits. It's actually a critical part of us getting to that $7,000,000,000 but it doesn't again, it's really that question of It won't all come in a straight line. But Shane can talk about that a little bit more in terms of the math. But Mark, why don't you give a little bit of insight into the markets business, particularly that Q2, Q1 and the relativity to global players? Yes. Look, and thanks for the question, Andrew. Look, in the Q1 this year, we did see A continuation of what we saw last financial year. There was elevation in volatility, customer activity was still Pretty much their spreads were wider. So we had that Q1 looking relatively strong. As we headed we went into Christmas and we went into Chinese New Year, there was just relief in the market. Volatility dropped significantly. Customer volumes dropped as a result of that. And a lot of hedging had been done anyway in that Q1 and actually last year. So there was a slowdown in customer activity. Spreads came down significantly, which affected both our rates business but also our credit business turnover has subsequently dropped there as well. And you saw a lot of government issuance which occurred late last year drop write off, particularly in the Q2. So that what we saw in the Q2 was really volatility dropping Significantly. And as a result, customer activity dropping and also, as I said, spread contraction. They were all basically what hit into the Q2. With regards to the comparison to our counterparts in the U. S. Particularly, A lot of those companies and we track that pretty closely have very large equity related businesses. What you've seen in financial markets globally is what we call a risk on environment. So Pete, then certain asset classes will benefit from that. Equities is the obvious one as you've seen through a number of the indices. So When that activity increases, we've seen their equity businesses particularly increase. We're not active in that part of the business. We concentrate on fixed income and currency is really our part of the business. 2nd point and observation I'd make is that there was a large M and A activity that we saw Particularly starting to grow offshore. We see a big strong part and that's affected and helped the FICC business, if you like, in the U. S. And in parts of Europe as well. We haven't seen that activity yet. Our pipeline looks really strong in Australia, but we expect that that will come through in the second half. Thanks, Mike. Shane, do you mind? Well, thanks for the question, Andrew. And if you ever want a reminder that the CEO used to be the CFO is clarity, which he answered that question Before I did, just to reiterate a couple of points. Firstly, we expect BAU cost, what we call BAU cost, to be flat to down Each half, and that's what we've seen. And that's what will drive the €7,000,000,000 BAU cost base at the exit 2023. The step up is all investment related. We expect to expense around €1,500,000,000 this half In precisely the things Shane talked about, accelerating the completion of BS11, investing in digital and investing in cloud transition. So it's a you got to look at this, whilst total cost base is up, it's BAU, Dan, investment up, and we always said that would not be linear. Okay. Thanks, Andrew. We'll go to Ed Henning from CLSA, please. Thank you for taking my questions. 2 from me. Firstly, just on the institutional business, the margin was up 3 basis points. You ran down assets there. Can you just run through a little bit more on the outlook around asset growth? Are you going to still run that down? And therefore, that what implies that's the NIM going forward, please? And what's your second question, Ed? We'll take them. Yes, yes. Second question is just really around mortgage growth. So you talked about mortgage growth slowing in the second half. Are you anticipating that to grow below system? As if you look at the last couple of months through the APRA stats, You have been growing below system. And is that just really the processing issues coming through? Yes, they're both again, they're insightful questions. I think, so Mark Both Mark's will talk about. I'll get Mark to talk about, I'll just give like headlines. Institutional, it is all about customer selection as you know and making sure it's the right assets. I think While it's tempting to look at the gross numbers, I think you really need to get into the detail. And I think though Mark will probably he's going to talk about the fact we think that's bottom. But he can give you a bit more insight into that. It's certainly not us walking away from the business. It's really just being disciplined about customers and those assets that generate the right kind of return. Then on the home loans, look again I'll get Mark Hand to talk about that. He can give a lot more detail. But what we're seeing we actually see A potential shift in consumer behavior. I mean there has been a massive uplift in just application volume and it's quite extraordinary. I mean if you look you see in the charts there, The number of home loan accounts we acquired in the half was 50% higher than we saw a year ago. I mean that's an extraordinary and that's what Drives the work as opposed to the FUM growth, which drives the revenue. And so, yeah, the work has been extraordinary. I mean we're not the only ones experiencing that and that does have flow on effects. But that so partly it's about that, but it's also about the fact we have a view that That growth rate is unlikely to be sustained. And I sort of mentioned a little bit in there about, you know, some population does matter here, and we think that will start to be more evident in the latter part of the year. But, Mike, why don't you talk about the institutional lending book? Yes. On the lending book, I mean, lending margins, Ed, we're up half on half about 13 basis points, which is really strong and that's as a result of Us repricing that book and obviously the benefit of some elevated spreads that flow through post last the year last year with COVID. And so really quite strong. We've actively been repricing that where we can, particularly internationally. And we'll continue to look at opportunities With regards to the volumes, if you look at our credit risk weighted assets, they're down about €1,000,000,000 on the half. Now, dollars 5,000,000,000 of that is FX related. So that's really just volatility that we see through that. Dollars 5,000,000,000 of that is on derivatives, where we've just benefited from higher stronger Australian dollar which dropped the mark to market on the derivative book and $5,000,000,000 of that is volume. So the real number there on volumes is about 5,000,000,000 Of that $5,000,000,000 $3,000,000,000 of that was actually active management where we took the opportunity to continue to reshape the book that we wanted. So we've reduced exposures with some customers and we've actually exited some customers. So that was deliberate decisioning by us. And then the other 2 being reduction was really just a combination of some volume reduction, which Shane mentioned, customers are repricing sorry, refinancing into the debt capital markets And there was some methodology changes. So really, the real impact on the overlying book is around £5,000,000,000 but as I said, some of that Just deliberate actions to us managing the risk. Do you want to just add to that, sort of your sense of the outlook and the pipeline? Yes. On the outlook, look, with regards to the outlook, I think the pipeline looks really strong. As I said, not necessarily in what I think is just normal CapEx type investment by customers. We think that's still quite slow. But the M and A pipeline is Probably the strongest I've seen it in 5 to 6 years. And so there's a number of transactions that are occurring there. We want to be part of that. It's a core part Of our capability around loan syndications, debt capital markets and bigger underwrites. So we're keen to participate in that. Obviously, they need to come to fruition. On the outlook for margins, I think we still look relatively positive on that. We think that there's still opportunity for us to Keep that stable and we're trying to do that. The front book looks strong against the back book. There will be pressure on it because of liquidity, but we're confident we can continue to manage that as best we can. And while Mark Hand, takes the stage, I'll just add a little bit of flavor into that as well, Ed. I know you're talking about sort of lending in general. But the other one that's in there is trade. And you know trade has actually suffered a little bit in volume as you can imagine. You know world's been a less easy place to operate. That also seems to have bottomed and has started to grow again. Now that's a lower margin business and it's quite small. But again, there's really positive signs there about getting some growth back into the, decent return growth back into trade. So Mark, hand on the home loan volumes. Yes. Just in To your question, Ed, about guidance, about where we expect to go next half, I think the two factors and it's pretty obvious thing to say, but what comes in the door and what goes out the door. And whilst we have seen elevated applications and as Shane said, that does create quite a lot of work and it puts pressure on our turnaround times. That is not all translating through to settlements at the moment. What we're finding is there is a shortage of supply in the market. So customers are getting loans approved, But prices are getting away from some customers and also when they turn up to buy, there's just not the stock on the market. So I'd expect some correction. I think the prices will drive An increase in supply, which will help us flow through to more settlements. And the other thing that you'll see from the APRA stats is where our market share sits, you'll see that we have higher market share in owner occupied and a lower market share than that in our investor book. And that's not the same for everyone. The investor market has been a little bit subdued, but what that means is because we have a higher share of owner occupied, we have higher attrition, more P and I lending in that book. Customers have taken liquidity that had injected into their households Over the last 12 months and paid down debt in many cases, switching to fixed rates, a lot of activity in that space, but we have seen higher attrition as a result of us having a larger owner occupied market share than we do in the investor space. And the only thing I'd add to that, Mark, I think the good thing about that, Ed, is in a funny way, having that having that lots of demand for applications makes us, Shall we say, less hungry at the front end. So it's an easier position for us to be able to manage margins responsibly, etcetera. So that's partly what led to a really good result And Mark's business, being able to manage margins wisely, while still actually experiencing really good share in terms of growth and volume. And our FUM for the half was up $6,000,000,000 okay? It slowed in the Q2, but it was a pretty strong result when you look at Thanks, Ed. We'll go to Matt Wilson from Evans and Partners. Yes, good morning, team. Hopefully, you can hear me. Hello? Yes, Matt, I can hear you. Sorry, sorry. Two questions. Just further to Ed's question, the housing market is quite intriguing. Obviously, house prices are up Strongly circa 20%, home loan applications are up 50%, credit growth only 4% and sort of Mark Hand referred to repayments matching or in some cases ahead of new sales. It sort of implies that new loans must be larger given the change in prices and yet the industry says that there's been no change in lending standards. What's missing as you try and square up all those data points? Well, and then secondly, I'll look at this again perhaps. And then just on the margin, great outcome. You seem to be indicating a bottoming in the net interest margin. But debt costs have started to rise when you look at the average balance sheet. You've repriced deposits faster than you've repriced loans. And you now have a peer in Sydney who wants to win back 140 basis points of mortgage market share and they think low rates are still to buy. Can you just compare and contrast your outlook on the margin versus theirs? Sure. I'll get Shane to do the margin. Housing market, again, you're right. It is complex and lots of moving parts there. There has been a change in the shape of the business in terms of Flow versus the back book. So the ones in there, in no particular order, Matt, and you know these ones, massive shift into fixed rate. I mean fixed rate used to be sort of 15% of flow and now it's 40%. I mean you know so people are attracted by that concept in that sense that they're blocking in so many at the bottom. That has implications in terms of margin and also just switching. I mean, a lot of that is not a lot of that is just our customers who've already got a relationship with the bank, who've got a standard variable moving to fix. So there's a lot of that in the book. Secondly, there's a much higher proportion of first time buyers. So while first time buyers are only 8% of the book, there's 17 ish percent of the flow, so that sort of doubled. And so despite talk about unaffordability, which is real, actually first home buyers have never been as active or Certainly not in many years and that has, implications since you've the shape of book. That also has implications in terms of things like LVR. 1st home buyers typically stretch themselves a little bit more. So that's why you've seen and there's some data in there, you're seeing a little bit more of growth and that above 80% LVR. Now we haven't changed our lending standards or the way that we assess somebody's capacity To repay or the suitability of a product, but there has been a shift in demand. Now it's not so much in the 90% and above, it's in that 80% to 90%. So there has been shift in there. In terms of the average size, actually I can't find it right now, but I know there's a slide in here. I was looking at it before. Actually It's not that material. Actually the data would suggest the flow average mortgage is actually a bit lower, than it was. But I think a lot of that has got to do with remembering that flow, a lot of it is refi. And so a lot of the refinancing sort of can kind of pollute some of that data. So there's lots going on. We just had our risk committee this week actually with the board. And I can tell you the board and ourselves, you know, with Kevin and the others are really intensely focused on the housing market as we should be, given it's our single largest asset class and giving some of those issues you referred to as just being things to be really cautious about. But what we reassured our risk committee is we haven't changed our policy settings or risk appetite. As a result, you know, we have pretty strict rules and policies around things like DTI. So, you know, etcetera, none of that has changed at this point. I don't know, Kevin, is there anything you wanted to add? No, he's shaking his head. I think we've covered that, Matt, and happy to take follow ups. But Shane, do you want to talk about margin? Yes. Hi, Matt. Thanks. Good question. Look, as ever, margins have headwinds and tailwinds, and it's a mixture of both. I think we managed I think we've shown we managed that well in this half. And what I called out in terms of headwinds and tailwinds as we go in the second half are we expect the low interest rate environment To continue to be a headwind, albeit a reducing one, and I talked about the Italki, which was 3 basis points this half As we foreshadowed, we expect that to be around 1 basis point going forward. Competition continues apace. It's intense. There will be there is a move to fixed rate from floating and that will continue and that impacts asset margins. The so that's 2 headwinds and tailwinds. We have we'll see some benefits from deposit pricing we did in the first half, continue into second half, Although the opportunities to reprice are probably less. And finally, the We think wholesale funding will continue to be a benefit in the second half as older tranches of wholesale expensive wholesale funding roll off, and we have the opportunity To draw further down on the term funding facility, the RBA's term funding facility. So it's a mixture of those. We're not giving guidance, but just pointing out the mixture of head and tailwinds. And Matt, just to give you some of my colleagues did give me the date. So first half 'twenty one, the at origination average Home loan account size was 364,000 and a year ago it was 382,000,000. So the number has dropped. And of course the other impact which I and again you know this, the impact of lower rates. I mean that has had a material impact on affordability or the serviceability of lines. Can I just follow-up? Yes, sure. Given you brought up the average, I imagine that's impacted by loan splitting and it's not an average based on actual customers. So it might be a tad misleading. But anyway, and then You raised the fixed rate loans and the level jumping to circa 40%. How do you think about that in 2, 3 years time when the RBA stops repressing The yield curve and we're hopefully in a more normal market environment for interest rates. So really and I might ask Mark Hand to Get ready to answer that one, Mark. Do you want to get up? It's a good question, Matt. I mean, There has been a tendency in Australia for people to really just focus on standard variable. But as we know, that's been over, I don't know, 30 year cycle of interest rates falling. So it sort of made sense, I guess. And what we've seen is quite it is a really significant shift. Now we should remember when we talk about fixed, you know, Shane mentioned in the talk, you know, the average tenure of fixed is 1 to 3 years, call it 2, just on sort of average. So it's not very long. I think it's going to be all I can say it's going to be really interesting to see consumer behavior and how they think about it, hypothetically anyway in a more normal rate rising market and particularly if the yield curve steepens in any way or changes shape. So it's a good question. I don't think we have an answer. But Mark, you've been in the business for a long don't know if you've got any sort of thoughts about how you think that might roll. So was that Matt was the question about what happens when rates start to rise? Yeah. And people's propensity fixed rate and what happens if fixed rates will roll off what you know? It reminds me of what happened in 2,008 with the old adjustable rate mortgage in the U. S. Potentially. Yes. Mark, Will and I have been talking about this, I think for 10 years about when rates rise, banking is going to be a really good business to be in. But it just doesn't seem to happen. It's been going the one way ever since we've theorized about that. Look, I think it's probably speculation because it has been so long since It's happened and the difference in debt that the average consumer carries is quite different to what it was last time rates were rising. But We see a lot of customers, even say as rates are falling have tried to opt out of existing fixed rate facilities Because even with the penalty fee that they might have to pay all the interest that they have to pay on that breakage of that fee, they're willing to wear that to move to a lower rate facility. I think people will hold on longer. And I think when they start to talk about interest rate rises, we might even see a bigger shift towards fixed rate in the short term. And this has been occurring increasingly over the last 18 months, the shift to fixed rates. So I suspect There's 2 things. 1, the problem is going to be very well spread out over a number of years. It's not all going to come in, in one piece. And I think we could also look to our New Zealand business, Which has had fixed rates at a much higher percentage around 80% for a long period of time. I think we can look to our New Zealand business to see what typically happens when you come out of this environment. Okay. All right. Thanks, Tate. Thanks, Matt. Thanks, Matt. And we'll go to Brian Johnson from Jefferies, please. Congratulations on a great result. Just to mirror what Matt, I think was talking about, I would have thought the real problem is that we've got a lot of people that have put on 4 year fixed rate loans at sub 2%. In fact, it's probably as low as 1.9%. And the maturity of those matches exactly with when the term funding facility sees the bank's own refi basically pop through. So we're going to have a big cohort That are going to face higher interest rates on the borrowing at the same time as the banks actually face refi that could equal a bit of stress down the path, I would have thought. But my two questions. The first one is, and so I just want to reiterate great result. The 12.2 percent core equity Tier 1, dollars 7,000,000,000 above the 10.5 The problem that we've got is that that's level 2, but we do have a higher requirement coming through in New Zealand, Which by definition and I know you will easily get to that figure, but that then creates a constraint at the level 1. On top of that, you wouldn't really want to sit right at 10.5, you our Can we just get a feeling practically of what the level 2 core equity Tier 1 from a very practical level that you could actually Point to before you after you when you're taking into account capital management. So how much of that $7,000,000,000 Yes, I understand. Okay. So first of all, thank you. And again, your insight around the foyer is a really pertinent point, Brian. It's good to point out. I think, actually I don't have the number at the top of your head. Our so I think your comments about the market are bang on. I think from our experience 4 year fix was I don't think we did like Any volume in that whatsoever. It's an interesting, I don't think demand was there, but it's an interesting point and we should probably do some more work on that from an industry perspective, because I think it's an excellent point. On the CET1 Shane, the reason you guys didn't do much volume is you didn't follow the other muppets and repricing down quite as Yes, we yes, thank you. Well, now System problem. Yes, I agree with you. And it will be interesting to see that how that rolls through. And again, even on fixed, we, you know, anyway, it doesn't matter. We, you know the data. On CET1, so take your points, but in the broader, how do we think about the capital we sit on, the $7,000,000,000 Now to be really clear, that $7,000,000,000 is above $10,500,000 Now we are not going to run the bank Through the cycle at 10.5. I think that would be a bit too aggressive. I we've said historically, and I don't think there's any reason to change that, is that the right sort of operating level is sort of in the high 10, so call it 10.8. And that there's no magic to that number either, but you want a little bit of a buffer. That's how we think about that, Brian. As we sit today And as you do your forecast, it's without any significant decisions or changes in our sort of capital management structure, It's hard to imagine how we get to 10.8%. I mean, you know, as I said, we you saw in this half, we generated 110 basis points of capital. Dividend policy is clear. So but that's where we see it, the 10.8. So then I don't have the How many dollars that equals, but it's a significant amount of the $7,000,000,000 still. In terms of the level 1 gap to level 2, It's only 20 basis points. And your comment about New Zealand, you're right. We're comfortably going to get there. I don't and we talked about it in the past. We're not sort of sleepwalking into our position in New Zealand. We're actively managing capital in New Zealand. We these changes for the RBNZ Happening. Okay. They're being pushed out. They're real. They do have consequence. And our team has worked really hard and diligently about re shaping our business in New Zealand as a result. Now I know there's a desire I guess to talk about exciting things like M and A and all that other stuff, but We're just getting on with a diligent job, customer selection, capital allocation, re pricing, all that sort of boring stuff. And the team in New Zealand has done a good job and we're really confident we can meet our requirements in New Zealand AND RUN, continue to run the leading franchise in that market and generate fair and decent returns for the shareholders of ANZ Group. I don't If you want to add, maybe I'll just add that the So you're saying it's 11% level 2, is that the real number including New Zealand, The high capital requirements there. Is that how I interpret that? I believe so. Yes. Yes, I believe so. I will see if any of my team are shaking their head vigorously Don't say it, and that's our interpretation. Yes. And just to reiterate, Brian, that the most of New Zealand build capital build is now done because Frankly, we couldn't get dividends out of there. So we don't have that far to go. Yes. And now the focus is we have the capital efficiency. It would be great in the result if we could have had the New Zealand figures in there. Okay. 2nd question, and I don't understand why they can't be there, Sean, to be quite honest. I think Change the timing of the New Zealand Board meeting or whatever, it should be in the pack. Shane, just the second one is if we have a look at Slide 51, just the housing market share. Yeah. Now from a strategic point of view, we've got a kind of constrained revenue environment. So what happens is every bank seems to focus suddenly on costs. But when we have a look at the strategy, we can see that even in this half year, your percentage of your home loan book that's originated through mortgage brokers is going up. We can see this increased flow to a commodity product, which is basically the fixed rate. We can see the mainline transaction the Worldline transaction where basically More of your ability to face the customers in the SME space is going to be through this intermediary. So against the backdrop of that, when we have a look at Slide 51, We hear from every bank, we hear disciplined pricing. But when I've looked at your housing market share and it's a great chart, ANZ versus the system. It's hard not to look at that chart and conclude that when you guys passed on the full rate cut in March, whereas your peers didn't, market share went up. And then when in November, every other bank cut its fixed rates, your market share went down. Now, when we actually have a look at the market share loss over the last 3 months that ANZ have had in housing, and we everyone is pretty openly critical of Westpac the moment. But 14 basis points of housing market share over 3 months, that's the same kind of well, Westpac have actually in terms of market share over the last sort of while. Are we getting to the point where we should be actually quite aligned in that slip to market share we've just seen in the last quarter? So again, it's again, it's an entirely fair question. So just a couple of comments on that. And I think it's important to say we are not suddenly focused on costs. We've been suddenly focused on costs for 5 years now. So I think we've got a track record on that, but I take Point. And the point there is we are not driving our customers to that broker channel. Our customers are choosing broker channel because they feel they get independent sort of advice and counsel And they get some price comparability. So we see it as an important channel. What's interesting about that is while we saw a spike for very practical reasons in COVID because Couldn't go to a branch. Actually it's sort of more normalized now and so the brokers is back to that sort of mid-fifty percent, sort of origination channel. But again, I think that's about customer choice. I don't think it's about us pushing them there because we're trying to save cost. That's I think that's far from the truth. I think that your point so we see it as a legitimate channel. Our challenge there is what we haven't Done a good enough job on and we are investing heavily in is making that broker experience better and more automated and more straight through. We for many years, Brian, as you know better than most, we sort of made a we were talking about this yesterday over the board. We sort of made a virtue of the fact That when a customer came through a broker that we manually assess that. First of all, the broker's not doing the assessment, we're doing the assessment, it was all manual. In hindsight, and it's easy to say in hindsight, perhaps that was a bit too virtuous. And actually what we should have done is spent more money trying Automate and streamline that process. And what I mean by that is digitizing the document receipt, you know, into the bank, order approval, And that's what we're doing now. So we can think we can make that a more a better channel for broker experience, and for customers ultimately. Terms of your Page 51, again, good observation. I think it's a little bit more than that. I think you're right about the price does matter and the pass through, absolutely not going to shy away from that. But another really important thing happened in that period where you see that spike in growth And that was that huge marketing campaign which we internally called Firecracker. That was the single biggest marketing campaign we've ever done in our history. You might remember that was the David thing, the thing with Aquinas frequent flyer points. That hit the market really well timed, Partly good luck, partly good management. And the good luck was it hit the market right at that time of lockdown where lots of people were sitting at home worried about the future and saying, I need to think about how I can optimize my household expenditure. I'm going to look at my home loan. And we were a massive beneficiary of that. And that's what saw that run up. What we've got is also which doesn't really come through because these are growth rates which doesn't come through here that just absolute volume of work has lifted right throughout that period and remains in an elevated period and that's put pressure on our systems, and we'd fronted up to that. And we're and as fast as we put on more people and you know Mark's put on you know literally a couple of 100 we put on hundreds of assessors into that manual assessment process, it's never enough because the volume increase has been sustained for much longer Than we anticipated. So we've got some really good investments going on there both in our own processes and automation and also with the broker. We're going to get that assessment time down. There's already good I mentioned there's a pilot underway on that. There's some good signs. But that to me gives us the opportunity to manage reasonable volume and margin. So no, I don't think it's a red flag. I don't think it's a concern. It's always a consumer you lose share, I get that. But no, we don't think it is a long term trend. I think Market conditions are just far more buoyant than any of us could have imagined and it's caught us a little unawares and we're rapidly doing what we can to build. I'll give you an example actually, Brian. We've been responding to a change in customer behavior for quite a period of time, which means we've had less branches today than we've had in the past. And it's interesting to note other banks slowly catching up on that, but we've been at that for a while. What we've got though, we've got amazingly talented people in our branch And what we've been doing is so through COVID we're able to shift them to help in hardship and now what we're doing is shifting them into this home loan assessment work. And so you know we've got a really good cadre of experienced people who know how to get work done, who understand customers and they're already with us. And so we can train them up in terms of assessment much more quickly. And so that's one of the areas we're reasonably excited about To be able to get on top of some of that fulfillment backlog. Thanks, Brian. We'll go to Jarrod Martin from Credit Suisse. Thanks, Jill. A question for Shane firstly. So we've got That doesn't help, Jared. That doesn't really help. Which Shayne? Shayne with a y. All right. Yes, okay. I'm right off. Okay. So we've got 2 cost targets out we won the cost target of $8,000,000,000 for Westpac, yourselves a cost ambition. Now I won't get you to comment on Westpac's $8,000,000,000 But what makes you think that $8,000,000,000 is the correct number for ANZ? What sort of benchmarking have you done? And I'm not sure whether the Board has asked you this question, but given that Westpac is now up with the same number, I'm sure that that's something they'd ask, the ANZ Group Executive, why is $8,000,000,000 the correct number? And the first thing I'd sort of observe is that Westpac is a much larger bank, so shouldn't ANZ be lower than $8,000,000,000 That's the first question. The second question is for With a W for clarity. Page 33 of the MD and A, new impaired increased four $2,000,000 in instow, and then the phrase used that every bank analyst, hates for a couple of single name exposures. So I just wanted a bit more color on that. I'll get Kevin to actually answer that. So Kevin will come up and get ready to answer that one. Again, both excellent question. So on the $8,000,000,000 so I'm happy to comment on Westpac if you like, but it's probably not appropriate. Hey look, actually I can the $8,000,000,000 isn't the right number and I don't think there is any magic about a number being right because you know The next question would be, well, what happens when you get there? Then what? And the reason we use the word ambition, We're not trying to be we're not trying to weasel out of it here, Jared. As I mentioned in my talk and You may be cynical on this. Seriously, if Michelle and I talked Shane and I talked, if we want to get to $8,000,000,000 next year, we can do it. It's really not that difficult, right? We can just shut a bunch of things down. We can stop investments. I mean, some of our peers have said, oh, they've stopped all these investments. And fine, we could get there, Not in too difficulty, but it's not the right thing to do, right? Because what our target is, is to build a better bank actually that has more sustainable returns for the long term. Now we just happen So why did I even mention 8 in response to a question? Because I had done the work myself and with the team in finance and with our friends in strategy, our real sort of bottom up review of what is the so one of the things and again I could talk about this a long time, I'll try not to, but one of the interesting aspects of banking as other industries. There is a lack of correlation between what drives your costs, either work that you do and how you make your money. Home loans is a great example. Home loan the cost of home loans is driven by how many how many approvals you do for example. That doesn't necessarily translate into revenue which is driven by FUM. So we went through what's the work that gets done in the bank, Right. So what drives those cost basis? What would best in class benchmarking look in each one of those things? So yes, we did do benchmarking. We looked at, you know, I don't know, a bank of our scale. What are other companies doing in terms of their cost of finance or the cost of processing, etcetera. So we did do all that benchmarking and we added that up. And then we did our own sort of view of just always limitations with that because it's hard to find people to look exactly like you and there's always reasons why they're not appropriate. And then we did our own just bottoms up, thinking through the bank we want to be and the work we want to do, how much would it cost? How many branches would you need for that? How many people would you need in a call center? What's the right coverage model in institutional, how many people would you need in talent, all that sort of stuff. So it was quite it was actually a lot of work and we attacked it From multiple angles with some outside help, but mostly internally. And every time we came around, it sort of centered on that about $8,000,000,000 ish kind of number. Now the big the big unknown in that $8,000,000,000 to be honest and we've talked a little bit more about it here today was what's your investment capacity in that? Yeah. And so because I think $8,000,000,000 is not difficult. It's the question about, yeah, but how much do you want to retain the capacity to invest For the long term and that's why today we've talked about the sort of $7,000,000,000 run the bank and have that OpEx you know the ability to spend $1,400,000,000 in OpEx terms, dollars 1,000,000,000 to invest. So that's why we've done it. But as I said, there is no magic to 8. What the magic is, is actually getting a business and a bank and a business operating model that works. That actually generates good outcomes for customers where you're winning, where you need to be winning, that you can service them appropriately, that you can we talked a little bit in here about resilience. I mean we don't want to weaken the bank in the process, we want to strengthen the bank in the process. So operating less operating risk, all those other things. So no, no magic in $8,000,000,000 The magic is in being a better bank. We are highly confident that $8,000,000 is achievable without doing anything silly, Like, you know, being sensible. That's why we've resisted hard targets because history says that companies will do almost anything to hit those hard targets. And at the end of the day, I think shareholders pay a long term price for that. Just my view on the $8,000,000,000 but Kevin, you want to talk about the single name question and impaired? Yes, Jarrod, in relation to the impaired, so basically it's attributable To customers, their positions were known to us and have been for some time. We've been working through them. The first one was a customer where we effectively restructured the facilities for them. And APRA requires us essentially where we restructure those facilities without the need for any provision on them to treat them in this way. So that's until certain conditions are met. That's the first one. And the second one effectively is a facility where we had recognized this in previous years. We had carried a collective provision against the NIM. Essentially what we've done is we've now impaired the asset and have the collective provision that we had previously carried against that NIM essentially netted out against the individual provision charge We took so there was little impact on the credit impairment charge for the year. So is that clear, Jarrod? Yes. Thanks. Thank you. German from Macquarie. Hi, Jill. I was hoping to follow-up on the capital question and also have a question on our replicating portfolio as well. So with respect to capital, I'm in China, just be interested in your thoughts on this because We've kind of talked we've heard banks talk about having surplus capital for a long period of time. And in fairness over the last 3 years, bank capital positions have increased significantly across the entire sector. Yet, APRA still talks about whenever they talk about capital, they have a statement there saying, APRA is not seeking So the increased capital from current level. I just think you should see your observations kind of where is the disconnect, why kind of banks are thinking they have plenty of surplus Of capital and Aperd doesn't necessarily view or at least publicly do not acknowledge that. And kind of leading that into sustainable payout ratio as well. You paid out 67%. Obviously, there's lots of notable items in there, but also your ability charge is very low. Just being interested kind of as we progress from here, where do you feel your sustainable payout ratio is? And on the replicating portfolio, very simple question. I've noticed in the chart you showed 5 year rate there. Should we be interpreting that as you're now investing your replicating portfolio on the 5 year basis and that's why the drag is much smaller? Okay. Thank you. All good things to get into. So I'll get my colleagues, Shane, to talk about replicating portfolio in a minute. So in terms of capital, I think it's really important and again you probably expect me to say this, it's really important how you got to have a surplus capital. I mean the easy way is just go and take it from your shareholders. We got there the old fashioned way by generating it, a little bit by selling some things, but generally by organic way. So I think that's an important thing to note when we say, oh, everybody's got surplus capital. So we got it in a good way for shareholders in a prudent and good stewardship of their funds. So that's important. 2, in terms of APRA's comments, the way that I read that, Victor, and I'm happy to go and look at their comments and send them to you. I think what they're really saying is no that unquestionably strong at an unquestionably strong level at the 10.5 that is sufficient capital for the system. They're not suggesting that the amount of the capital in the banks today is required to go forward. They're really saying, hey, there's no reason to recalibrate the 10.5% and when they make changes to risk weightings and calculations within various portfolios, net net, they would see that to be an industry wash, if you will. Yes, might mean for some will be slightly worse off and have to hold more and some might benefit, but an industry that 10.5 has remained sufficient. That's the way that we interpret that and that there is still a That there is still therefore some surplus. Now the problem with that surplus is, I'm putting words in their mouth, that needs to be stress tested Plus, I it's all very well to say we've got surplus as an industry today. The question is, on a stress basis, Would you still be able to maintain above 10.5 percent? And I think from where we sit, we'd be very highly confident that even on debt definition we sit on, surplus. And that's why we made some references to having the flexibility for the Board to consider capital management and returning some of that to shareholders. Why are we a bit hesitant on that at the point? Because there's still a lot we don't know. And you know from where we you know we still got the budget next week and While there's positive sign, we still don't know, and that will have an impact. And secondly, I think really importantly, the impacts of the removal of things like JobKeeper They've actually yet to flow through into our data. And you know if you're a small business that was only surviving because of JobKeeper, That only finished literally, what is it, a few weeks ago. We're not going to really know how that is for you until probably into June When that will start to know. So I think there's a little bit more time, a little bit more water to go into the bridge. And as I said to one in response to one of the other We think the operating rate is still as sort of 10.8. Yep. And our payout ratio, whichever way we look at it, through the cycle 60% to 65% ex L and I makes sense for us. Why? Because when you look at the model That allows us to grow our risk weighted assets at about 3% to 4% per annum through a cycle, which is pretty decent from what we see to be able to grow, so to have enough capital to grow, to generate organic profits and return that 60 to 65 makes sense and it all sort of works and still be aligned to our franking credit position in there. So I mean as you can We went back and because that was our previous payout ratio. We haven't changed it. We haven't we haven't seen the need. We went and basically road tested that to say is it still appropriate. And obviously we go through our own planning and we've come to the conclusion that it is. And now to your point about we're a little bit above it today, It kind of depends, right? I mean, if you look with Al and I or not, on one hand you could say we're a bit below. We're in the sort of mid-50s payout today. You're quite right. There are another way to say we're in the mid to high 60s, call it somewhere in the middle. We're sort of we're in the mix. And I think the important thing about L and I issues, particularly in this half, a lot of them are not capital impactful. So we think we're back in track more or less in that 60% to 65%. And we're conscious about it being sustainable and no need to shift our ratio. So, Shane, do you want to talk about the replicating? Yes. Thanks, Victor. Good question. We called out a 3 basis points impact For 1.5-twenty one, and that's where we came in. We indicated that the impact will be more like one basis point in the second half, and that's for a couple of reasons. Firstly, the impact of the older tranches rolling off relative to the current investment yields. And yes, that's the 5 year rolling is reducing. And secondly, whereas we built up deposits last year, with rates being so low, we kept those some of those incentive deposits at the short end. With rates increasing, we've now pushed those out to the longer end. So we get a delta half on half in that sense. It's the Both of those together makes us think it will be about 1 basis point headwind in the second half. Sorry, can I just confirm, in the past, it was 3 years, wasn't it? So you're right. 3 to 5 years. Investing into 5? Think about it. Yes. The tenant portfolio is 3 to 5 years. With the rates where they are, we've moved out to a little bit more 5 year at the moment. Yes. All right. Thank you. Thanks. Victor, we'll go to Brett Le Mesurier from Velocity Trade. Thanks very much, Jill. Shane, number 1, you talked about achieving sustainable returns. What do you consider to be the sustainable return of AMD? Well, that's a big question, Brett. I'm not going to put a number on it because again, I don't want to be sitting here every half How I'm going against my new target that I've committed to. Look, sustainable, the way that we think about it, The reason I and also I think in all seriousness, it's all to do with your cost of capital as well, right? And so we've probably been more vocal on that and not everybody likes it, but we do think about that. And you know our cost of capital has come down over a period of time. So I really think it's about How do we have a business that sustainably generates a decent return above our cost of capital? Now as you know, And you can argue about what the right margin is. Our cost of capital in the half and we moved it to 8.5%. I think a sustainable return means in that environment would be sustainably in double digit. Yeah. So I think there needs to be a reasonable margin above that. But we need to be able to show that we can run a business that is attractive to customers, generates fair and decent returns above our cost of capital with a margin, so not at 8.51 but as I said over through the cycle. But I don't think we can I don't think it's wise to have just pick a number for the sake of it? Sure. And when you set your 60% to 65% dividend payout ratio based on 3% to 4% risk weighted asset growth, do you think that implies a sustainable return? Yes. So now again, you quite rightly will ask, well, it depends on which rest weighted asset growth you get. But when we do our planning, we think about our business about the 3 businesses that we have, institutional, New Zealand and Australia and based on Slightly differentiated. They've certainly got different returns profiles today and going forward and they clearly have different growth rates, so it will depend on that mix. But yes, we model all that out through different scenarios and say, yes, 3% to 4% RWA growth depending where it comes from. If we apply the discipline we do today, in terms of our pricing models and our customer selection, Yes, that will generate the sort of returns that are, we think, a fair margin above our cost of equity. And that 60% to 5%. And that's why there's a range there to give you some flex depending on any particular year of what's going a little bit better than others. Thank you. There are other questions. Thank you. Thanks, Brett. We'll go to Andrew Triggs from JPMorgan. Thank you, Jill. A couple of questions, please. One to Follow-up on the cost ambition and 2 just on sort of the likelihood of some form of macro pruning later in the year. Firstly, On the cost side of things, obviously still an ambition rather than a target. Can I just ask to the extent to what this is embedded in scorecards for the management team, I? E, how do you ensure that there's enough priority on taking costs out in what is obviously a difficult revenue growth environment looking further ahead? Then just the second question, do you think there's a significant risk of macro prudential rules in Australia? And if so, what form do you think that would take given The challenges here are very different to what we've seen in New Zealand. Yes. Okay. Thanks, Andrew. Again, really good question. So on the cost line, look, I don't want to hide behind semantics here. That is our plan. Our 3 year financial plan has our costs going You know, to that exit rate of $8,000,000,000 So I I you know, it's not like, oh, we've got a plan that we run the bank on them, but I come out here and say, wouldn't it be nice if cost for 8, you know it's an ambition. So maybe it's not the right word. What I'm trying to signal here, so it's in people's scorecards. It's in my scorecard, it's in our team's scorecard. But what I'm trying to signal here is we are not going to hit €8,000,000,000 at any cost, Right. We're not going to do it at by you know missing out on opportunity or by under investing in regulatory and compliance work, right? Or by not investing in the right technology for the longer term. So it's that's the subtlety we're trying to get across. And again, maybe I'm scarred by it. I just feel if I came out and said it is a hardwired target, The nature of large organizations is to deliver it at any cost and I think that that we would live to regret that. So and you know If I, you know, if I have to stand here in front of you at some point in the future and explain why 8 is no longer the right number, I'll do it. But I need to be held accountable to explain Why that's no longer the case. But as I sit here today, I have no reason to believe that we can't achieve it and that it would be the right thing to do for our customers and for For our to meet our obligations. So that's sort of the subtle difference. I think it's very subtle. It's in our scorecard. I'm accountable. My team's accountable. That 150 initiatives with every dollar and all that stuff that adds up to the 600, it's all in their scorecards and that's the stuff that we monitor literally every week. We have web system we go through and do all that. So don't for a minute think that I'm softening or walking away from it. Macro potential. Look, it's a big question, right? I think so our own economics team believe that there is Possibility and likelihood that there might be some macro, prudential limits put in place towards the end of the year. My personal and look, we don't know. So we've got to catch that. My personal view is I agree with you and I think the situation in New Zealand is considerably different In terms of housing and the impact on the community there. So I don't think it's analogous. And I also think that you know the last time and you all know this and you know it Andrew, the last time we had macro prudential In this country wasn't that long ago but it was actually designed around a prudential system issue. It was around, you know, that was the first priority, prudential soundness of the system and whether the massive uplift we saw in investor and interest only was sort of sustainable and in the long term interest Of the system. I don't see that same driver today. When I hear people talking about macro potential potential, It is generally through more of a political and I understand social lens of affordability. The way I read it, that is not in the remit of APRA, in terms of their their sort of statutory obligations. Doesn't mean it won't happen. And the only other comment I'd make, so I'm not you'll have a view. The only comment I would make, I reckon that macro prudential stuff that happened last time was actually good for us. I think it was actually the right thing to do and I think it actually helped the system. And actually if I think about it at ANZ, I think it was a good outcome. I think the macro prudential stuff that's happening in New Zealand is actually a good thing for ANZ. And I understand it, it's not perfect and it has unintended consequence. I would say it's been a good thing for us. And you would have seen in New Zealand, we actually sort of front ran that in terms of lowering the LVR On Avesto, we got ahead of that and didn't wait to be told. So I don't think it's necessarily a negative for the system or the sustainability of our business. The only thing I would add, Andrew, to what Shane said is we do have targets. Everyone has got a target. And we have separate targets for BAU costs and for investment, and we think about them quite differently. Good point. It's the BAU point that we really Have the targets on the investment. As I said, we haven't committed investment out to 3 years. So it's kind of Available for growth. Yes. Good point. Thanks, Andrew. We'll go to Matt Ingram from Bloomberg Intelligence. Hi. Thanks, Jill. Sorry to bang on again about the dividend question. I just wanted to clarify. So we've obviously got a 60% to 65% base level, which obviously meets ACRA's sustainable kind of comment. But in order to get to the lower level, the 10.8%, clearly, we're going to need to see a one off event. Is that kind of what you're implying by Saying that the Board will review that sort of that capital management. And the second question is regarding the investor housing loans. The APRA data suggests That kicked up for you in the March half year. Was that a demand factor? Was that a change in your focus? If you could please talk about that, that would be great. So I'll take them in reverse order. It wasn't really a change in focus, it was a demand issue. I mean our focus has been pretty consistent. We want to grow the business. We want to do it responsibly. We haven't changed our lending standards. We have changed no policies around risk appetite. We do have a SKU to prefer owner occupiers, but it's not exclusively. So we just sort of we've been open for business, through that period of time. And you know it's just really response responding to the demand characteristics that we talked about previously. So no, it wasn't there's not been a shift From our perspective, overall. And that and by the way, that appetite remains, today, yeah? In terms of capital management, again good question. What we you're right the maths is simple in a sense. It says well hang on Shane if you're sitting at 12.5 And you're saying at some point 10.8, our dividend payout ratio of 60, 65 isn't going to get you there, right, unless you've got some massive capital consumption growth coming in your business, which we're not seeing that. So you're right, what we're signaling, I don't know that I'd be as With all due respect, I'm not sure it's quite as simple as you put it about this one off event. But clearly, the only path to get to 10.8 percent putting aside sort of almost unimaginable growth in our balance sheet would be Some sort of capital management activity. And as you know, they there is a range of options there, whether that's, you know, I don't know, special dividends, buybacks, all that sort stuff. We've made our views on those things in the past I think reasonably clear. And I think our record speaks for itself about given our franking balance, given what we are. Historically, it's not an indication of the future, but historically we've chosen a path to return Seapless capital using on market buybacks and reduce our share count. And what we're saying in this result is it's good to have choice and it's good to have the flexibility to be able to even consider those things. Thanks, Matt. We'll go to Brendan Spruill from Citi. Thank you. Good morning. My questions just relate to Slide 25. Show here the impact of credit portfolio risk migration, and you're suggesting that there's potential 15% impact in the second half of I was wondering if you could expand on that and whether it's a reversal of what you saw in the first half or whether it's related to Some other parts of your loan book. And then my second question is just on the collective provision balance. Obviously, you've had a large write down in this period. Your loan book is obviously smaller than it was pre COVID and your average credit equate to EAD is lower. Should we expect that over time, once the Australian economy improves, It should be down below what it was pre COVID. I'm going to ask Shane to comment on Page 25, the 15 basis points top right. Yes. Yes. So look, great question, Brendon. So what we're expecting to see there is Our institutional investors, which we did, 90% of them, we re graded them whilst COVID was underway. They're coming through much better. So we expect those improved risk ratings to come through in CRWA. That's what we're seeing. Yes. And the second question, I think the high level answer to that is that We've done a lot of hard work to just if we can just park COVID just for a second. We've done a lot of hard work over 5 years to de risk our portfolio, right, and to really focus on risk adjusted returns. Now most prominently that people tend to think about institutional on that and institutional have done an extraordinarily good job in that. But it's broader than you know it's the same it's that de risking that led a lot of our decisions about disposals and about capital allocation and about even customer selection within things like Australia Retail, yes? I'll come back. I'll get that capital. Yes. So that derisking Is coming through here and what we're really pleased about so that's a longer term trend. What we're really pleased about is that that really held up well through a period of stress. And you know, we look at all the things we missed. You know, I mean, it's easy to sit here and say, well, things are worked out really well for the economy? Well, yes and no. I mean there were failures and again we run a global business not just unit. There have been companies fall over. There have been failures. There have been companies that have got themselves in to bother. And you know our customer selection has put us in really good steam to avoid a lot of that. You say the economy recovering, I mean the reality is the economy is in I mean Australia is in really good shape from where we sit today and certainly based on the data. And our customers are in really good shape. I mean they still don't have a lot of debt. We're talking about businesses. They're sitting on a lot of cash, and that's what's really driving the sort of regrading towards the positive and that positive risk migration, which has been a good thing. Hey, some of them Mark mentioned it before, some of them will lever up a bit, take opportunity as they see it, maybe in terms of M and A activity. I don't sit here today overly concerned about that. I think they have the capacity to do that without it really impacting our risk rating as a bank. But did you want to add? Yes, yes. Look, I actually want to clarify Asking answering slightly different question. The answer to it is in the 15 basis points, look, what we've seen in Through the deferral packages, through the government stimulus is we've seen customers really tidy up their own balance sheets. We've seen buildup in offset accounts. We've seen customers with deposits with many, many months of ability to pay the mortgages. We've seen lower credit card usage. So all that's led to a customer risk weight migration in the first half. With the removal of the packages, with the removal of deferrals, with the removal of the stimulus, we expect, As I said earlier, we expect delinquencies to come back to more normal levels. And so what we're seeing in the second half or what I'd expect in the second half is a little bit of the reverse of what we saw in the first half. The institutional reverse regates that I was talking about little bit further out than that. Yes. And the 15 points there, Brendan, we think is more predominantly going to come from actually our retail rebound in the second half in particular and still be a bit further down. Okay. Thank you. Did we was there one last question from? No. Okay. The lucky last Richard Wiles, Morgan Stanley. Good morning, Shane. Good morning. I've got a couple of questions. Yes. I've got a couple of questions, Shane. The first one relates 2 margins and the second one relates to capital. So on the margins on Slide 18, you highlight an asset repricing plus two basis points. It includes a drag from retail and commercial of only 1 basis point. Given the Competition we've seen in the mortgage market and given some of the disclosures from other banks on the impact of mortgage competition. Could you explain why that retail and commercial drag is only a basis point? How much is the mortgages? Is there Something else offsetting it in the business bank? Yes. We can answer that in the next question. And then the second question, just relates capital. You've said the you've said 10.8% is a rough indication of where you might be able to run CET1 ratio once the environment's a little bit clearer. Is that on a pre or post dividend basis? Because Your $2,000,000,000 dividend today is about 50 basis points. So if you were looking at a pre dividend common equity Tier 1 ratio of about 10.8. That would take your ratio below 10.5 on a post dividend basis. Is that something you'd be prepared to do? Yes, I'll answer that question and I'll, Shane can talk about the much. Yes. So it's again, it is a good question. And the the the so the 10.8, the way we think about that is a through the cycle sort of number, right? I don't think it's helpful for us to say, because as you know, the sad reality of dividends is we just happen Pay them twice a year in really big lumps. I don't know that that suggests, you know, today we sit at, you know, we sit at, I don't know, 11 and tomorrow we said at 10.5 suddenly we're a riskier bank. I mean maybe technically that's true. So anyway, your short answer to your question is we would be prepared For timing reasons like that to dip below. And let's not forget that there's still and as you know there's really strong organic capital generate. I mean we are generating capital every day. And so yes, we would be prepared to dip below the 10.8% if it was due for those sort of timing reasons. And because again, Richard, part of the reason for having that buffer is exactly for that. And I think, you know, and, you know, and to be really fair to You know it's interesting, it wasn't a year ago, we were being encouraged by the regulators to Use the buffers and go below the 10.5% and being potentially criticized if we didn't contemplate that. So I think they've shown a maturity About it and they do not expect us to be at 10.51 every day of the week, every week of the year. So yes, we would tolerate dipping below for short periods of time if it was to do with timing like that. But Shane, they yes, they said you could use buffers, But they also effectively required you to defer or cancel the dividend. It was a pretty extreme scenario. I would have thought you want to operate With very little risk of having to reduce or cancel the dividend. So if you go, if you're at 10.8%, you pay a dividend, you go to 10.3%. And then let's say you have a couple of single name exposures or you have an event that causes Your institutional corporates to draw down on their debt. You could be in a position where you're At 10.5 or even below the end of the next half and then in a position where you can't pay dividends. Yes, I understand. How is that Running with enough of a buffer. Yes, yes, fair enough. Maybe I misunderstood your question. That's a totally fair question. That's not what I am suggesting. So what I'm suggesting is that when we do running at 10.8 Means that when we do our forecast, so for example, this week when we sit down with our Board and we talk about our capital plan and our ICAP and all that other stuff, We have to assume and I mentioned about in a stressed scenario, it's not just 10.8, you know, hey, I'm at 10.8, I've hit my number. It is forward looking and sort of on a stressed basis to say, hey, we're highly confident, it's not going to be perfect, but we're highly confident in the normal course of business with some level of stress that we will be at continue to be able to operate at 10 point So it's not I take your point and I'm not suggesting that we are aiming that that sort of perfect on a day sitting at 10.8 I accept all the risks that you point out. I understand what you're saying. That's not that's maybe I'm not making myself clear. It's more of an operating plan over the future to say we aim not at 10.8, there will be ups and downs and things like that and we stress it to make sure that we can comfortably do that. Because Clearly, you're absolutely right. The last thing we want to do, and I think ANZ has some credibility in this, is dilute shareholders or cancel dividends unnecessarily. We understand and that's why we've talked about that sustainable payout ratio is really sort of important. Richard, thanks for the question on the asset pricing. The front book, back book is 1 basis point as we point out there. It's lower than usual this half due to the fixed focus, the flows into fixed rate lending. And the fixed rate impact sits in the asset mix. Yes. The only other thing I'd add Richard, I think the 10.8 question, it's interesting and I'm not please I'm not diminishing your question. At this point, it's sort of highly theoretical. I mean, we're sitting at 12.5. So at the moment, the prospects of us through the normal course of business being anywhere near that seem quite remote. We sort of have an embarrassment of riches, if you will, in terms of the excess capital. We're trying to work out how big That buyback. I figured that out for myself. And how far the share count will come down. Okay. No, no, I figured that one. No, I understand Richard. As cunning as that question is. Thank you. And so I'll hand back to you, Shane. Yes. Look, thank you very much for questions and the opportunity to talk to you today. This has been an extraordinary period of time. I just want to reiterate a couple of key points. We're 5 years into Well, my time as CEO and the strategy that we have, we are getting better. We are not perfect, but we are getting stronger as an organization. I don't just mean that in terms of capital, I mean that in terms of our ability to execute and get things done. We've simplified the bank a lot, but it is still a complicated place it is there's a complexity that is natural in such a business and it comes from a lot of the questions that you are asked today and you guys all know that. We're feeling really good about the strength of our balance sheet. And I don't just mean capital. I mean the quality of our assets, the quality of the business we have. We're feeling good about them. Our management team, is a really strong one and we've got really diverse skills, and we have been together now for period of time. And we're just feeling we're getting every day we just get a little bit better in terms of that execution focus. And I would I made a comment in my speech, I think it's really important, that is really flowing down into our organization in terms of that execution focus about getting things done and the accountability that comes with it simplification, we just have less things to do, so we can orient our efforts to those things and get them better. We have some issues in home loan processing. We're not we're not alone in that. That's no excuse, and we are diverting resources as best we can to improve that and enhance it. We operate a regional business. We're really mindful of the stress that some of our colleagues are under and I mentioned some of the countries, particularly India. It's really tragic is happening there? We're doing everything we can to support those people in those markets. And, you know, I'm confident we're going to continue to do the right thing by them. But I'm also, you know, and while that's tragic and you know, front and center in our minds, we're also frankly sort of have mixed emotions, we're excited about the opportunity we've got ourselves into here in terms of that strength that we can deploy For the benefit of shareholders and for our customers over the coming years. So, a difficult time. Thank you for your questions and we look forward to talking to you over the coming weeks. Thanks.

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