4A N Z P R I V A T E B A N K

IN ThE PAsT fEw moNThs, wE hAVE sEEN ThE woRld

f INANcIAl mARKETs ExPERIENcINg A lEVEl of

INsTABIlITy ThAT would hAVE BEEN uNImAgINABlE IN

mosT of ouR l IfETImEs.

What started as a credit crisis in the second half of 2007 has

developed into a global financial crisis which will inevitably

change some aspects of the way markets are viewed and

regulated.

There are many important questions which our clients no doubt

want answered – about government guarantees, strategies for

the short and long terms, and the quality of the information on

which they can base their decision. Importantly, you can rightly

ask, “What is the bank doing to help me?”

I am pleased to be able to reassure you on several key matters.

Because we are a bank, we are very close to the issues affecting

the global financial problems and safeguards such as the

government guarantee on deposits. As part of ANZ Banking

Group, one of only 14 banks worldwide with a AA rating, we

offer an unusually high level of protection for our clients’ funds.

We also have a great range of knowledge and expertise

throughout Private Bank with a very experienced investment

committee and asset management group, headed by Chief

Investment Officer Kevin Armstrong. In this issue Kevin offers

his perspective on investment in the current climate. You can

also read more about the rigour and discipline we apply to all

our investment decisions.

I N T R o d u c T I o N B R I E f I N g I N V E s T I N g21 A N Z P R I V A T E B A N K A N Z P R I V A T E B A N K I N V E s T I N g3 A N Z P R I V A T E B A N K

SeTTING A STABle COurSe

What was Sotheby’s telling us?

ThIs TImE lAsT yEAR I wRoTE AN ARTIclE TITlEd “Is

soThEBy’s TEllINg us ANyThINg?” I INcludEd IN ThE

ARTIclE ThE followINg chART of ThE PRIcE hIsToRy

foR soThEBy’s shAREs oVER ThE PREVIous fIVE yEARs.

This will be my last introduction to In Private, as I have accepted a

new role as Managing Director of ANZ Private Bank for Australia and

New Zealand. John Body will be taking over the day to day leadership

of Private Bank in New Zealand. John has a wealth of experience in

financial markets and is ideally placed to continue the development

of our Private Bank offering. You can read more about John’s

background and his vision for Private Bank.

I believe bringing the Australian and New Zealand private banking

operations closer together will produce an enhanced service with

the benefit of shared knowledge and expertise. We will continue to

focus on delivering an improved seamless service, useful and timely

communication, and the tailoring of advice and wealth solutions to

suit your needs and your goals.

Within our business we have an enormous depth of expertise and we

are here to work with you and to help you through the coming period.

IN PRIVATE

catherine mcdowellmanaging director, Private Banking Australia and New Zealand

environment for many markets and that a return to the benign

and orderly rising markets that were enjoyed by so many,

across a huge array of markets over the last four or five years,

is unlikely.”

Now, twelve months later it seems that Sotheby’s was indeed

telling us something. Markets for just about everything have

suffered historic reversals, and the investing environment has

changed beyond all recognition. What is most remarkable is just

how much this reversal has been reflected in the share price of

Sotheby’s. As noted above twelve months ago it had already

plunged 40% and wiped out the previous year’s entire advance.

unfortunately that was just the beginning of Sotheby’s travails,

as the following updated price history for the company shows.

After last year’s article the price of Sotheby’s shares did

briefly struggle back above $40, but then their decline began

in earnest. Over the last year the shares have fallen another

eighty percent. They are now down about 90% from their all

time high and languish at the same price they were at when the

wonderfully benign bull market in everything that I described

last year began, in early 2003.

The graph shows that, after soaring from around $5 in mid-2003

to eleven times that price in October 2007, the share price of

major auction house Sotheby’s had crashed 40% in November

2007, on what was apparently surprisingly weak results from

their major New York sale.

The article did not attempt to forecast that the share price of

Sotheby’s and other auction houses was set to fall further.

rather it raised the possibility that what had led the previously

meteoric rise in the share price of Sotheby’s, and until the

middle of last year most other investment assets, had been

the same thing - hubris, or overconfidence. It was possible that

Sotheby’s could have been one of the many ‘canaries in the

coal mine’ that was alerting investors late last year that the

investment environment was indeed in the process of changing.

I concluded last year’s article with the following comment:

“It is quite possible that the next major art auction will surpass

expectations; however, as is the case for many markets, it is

likely that the environment and mood of investors has now

changed. This is not to say that markets that were previously

rising are set to collapse, investing is rarely that simple. rather

it is probable that we have now entered a more challenging

We’d like to hear from you.Please let us know any suggestions you might have for improving

In Private, including the types of articles you’d like to read.

Contact your Private Banker or email Evelyne.Matheny@anznational.co.nz

John, what’s your background, and what were you doing before taking up your new role as managing director Private Bank?

In my previous role I was Head of

Markets for ANZ National Bank,

looking after all our currency,

interest rate, and commodity

trading and sales businesses. I’ve

spent the last 22 years working in financial markets, including

four years in Singapore and four years in Melbourne, so I’ve got

a pretty intimate understanding of markets and how they work.

what are some of the things you’re looking forward to most in your new role?

I’m certainly looking forward to the challenge. I believe

the private banking and wealth management area will see

significant growth and increased focus over the next five years.

There are a number of reasons why this is the case.

For example, there is a lot of debate at the moment over

superannuation, including discussions around compulsion.

Many New Zealanders are also changing the way they view

property as an investment, with the realisation that property and

other non-financial assets can be volatile. We are also seeing

changes in our demographic profile, with the impact of the baby

boomers and an increasing Asian population. These and other

factors mean there is an increasing focus on the management of

wealth, and a greater understanding and move to diversification

in terms of how wealth is created and protected. When you

overlay these trends with the scale, expertise and resources

of ANZ and our global network, it’s a very exciting time for

ourselves and our clients.

what’s your impression of Private Bank as you come into the role?

My impression is that it’s a very strong, very well-managed

business with a unique proposition for our clients. We have

by far the broadest and most holistic offering, from banking,

lending and risk management services to a comprehensive

investment management service. We overlay that with a

wide range of other capabilities such as our Direct Broking

operations, so we can provide a complete solution whatever our

clients’ needs and interests.

what can clients expect to see under your leadership?

First and foremost they can expect a continuation of the things

that make the Private Bank service so special. Catherine

McDowell has done a wonderful job in building a great business

with an exceptional brand and an outstanding offering. I’ll be

looking to continue that legacy and add my own experience

in financial markets to position us to meet the challenges and

changes I’ve already talked about.

In particular, I’ll be ensuring that we remain close to our clients,

because the quality of the relationships we have is what

really sets Private Bank apart. Having the best and broadest

offering is one thing. But the ability to match those services

to the individual circumstances of every one of our clients

is paramount. It’s that attention and understanding that will

ultimately determine our success and that of our clients. IN PRIVATE

The art market is not necessarily closely linked to the real

economy. It is naturally a relatively focussed, or niche, market.

It is therefore possible that art auctions, such as Damian Hirst’s

incredibly successful ground breaking Sotheby’s auction in

london in September of this year could continue to attract

large bidders. However, the Hirst auction does now stand out

as being somewhat unusual, and even he had a number of

works go unsold. Sotheby’s have now had disappointing sales

in Hong Kong and New York, and have been cutting their own

expectations of earnings. It seems that twelve months ago the

share price of Sotheby’s was indeed telling us something.

The real question now for investors, and probably art

collectors, is what happens next? It is clear that the world has

changed dramatically. everything that was previously soaring

in price, from property through to shares and commodities,

has dramatically reversed. It is clear that many of the major

economies of the world are now in a recession and there is

growing talk of another Great Depression. However, it is vital

that investors avoid getting swept down in the emotional doom

and gloom that is now being heard increasingly frequently.

Just as it is now obvious that it was foolish to get overly excited

and overly committed amid the euphoria and optimism that was

present in just about every investment market eighteen months

ago, becoming overly cautious now may be a classic example of

closing the barn door long after the horse has bolted.

Major peaks in any investment market are always accompanied

by excitement and optimism and major troughs are always

characterised by the opposite emotions. It is the way markets

work. unfortunately emotional extremes are only obvious after

the event and cannot be measured scientifically. Investing is,

and always has been, more of an art than a science. IN PRIVATE

Kevin Armstrong chief Investment officer

Financial jargonevery activity has its own jargon – from sports like cricket, where

‘silly mid on’ and ‘googly’ confuse the uninitiated, to the movies,

where exactly what the ‘best boy’ and ‘key grip’ do on set is a

mystery to all except those in the industry.

Financial markets are no exception. Here are some widely-used

financial terms; we’ll be featuring more in future issues.

BoTTom uP / ToP dowN INVEsTINg

These are two different approaches to selecting investments.

Top Down investors study trends in the economy, and invest in

companies that are likely to benefit from those trends. Bottom up

investors prefer to look for individual investments that are attractive

(for example, they may be companies with a monopoly in their

market), regardless of broader trends.

gRowTh / VAluE / INcomE INVEsTINg

Growth investors look for investments with good potential for

future capital gain. Value investors look for investments that they

believe are currently under-priced for one reason or another. Income

investors focus on investments with a good, ongoing income stream.

Bull mARKET / BEAR mARKET

A bull market is one where there is an extended trend of rising prices

(think of a bull striking upwards with its horns). A bear market is one

where there is an extended trend of falling prices (think of a bear

striking downwards with its claws).

lIquIdITy

Broadly, the amount of capital that is available for investment.

The current environment is one of low liquidity as it is relatively

difficult and expensive to borrow money. With regard to individual

investments, liquidity refers to how easy it is to buy or sell that

investment.

VolATIlITy

A measure of how much prices fluctuate. High volatility means prices

move up and down frequently and sharply.

ocR

The Official Cash rate or OCr is set by the reserve Bank. It is the

base overnight rate at which the reserve Bank lends to or borrows

from registered banks through the settlement accounts they hold

with the reserve Bank. The OCr is used by the reserve Bank to

influence interest rates and help keep inflation within its target band

of 1 – 3 percent.

Sha

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Year

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Introducing...John BodyJohN Body REcENTly TooK uP ThE REINs fRom

cAThERINE mcdowEll As PRIVATE BANK mANAgINg

dIREcToR. IN ThIs IssuE of IN PRIVATE wE TAlK To JohN

ABouT ThE ExPERIENcE hE BRINgs To ThE RolE, whAT

clIENTs cAN ExPEcT To sEE fRom hIs lEAdERshIP, ANd

hIs VIsIoN foR PRIVATE BANK.

– Sothebys

– 200 Day Moving Average

– Sothebys

– 200 Day Moving Average

This material is provided as a complimentary service of ANZ Private Bank, part of ANZ National Bank limited (“the Bank”). It is prepared based on information and sources

the Bank believes to be reliable. Its content is for information only, and is subject to change and is not a substitute for commercial judgement or professional advice which

should be sought before acting in reliance on it. To the extent permitted by law the Bank disclaims liability or responsibility to any person for any direct or indirect loss or

damage that may result from any act or omission by any person in relation to this material.

A copy of the Bank’s, Catherine McDowell’s, John Body’s, Kevin Armstrong’s and your Private Banker’s disclosure statement, prepared under the Securities Market Act 1988

is available on request, from your Private Banker, free of charge.

upper North Island

Phone: 0800 151 393

central North Island

Phone: 07 577 5005

lower North Island, Nelson/marlborough

Phone: 0800 373 909

south Island

ChristchurchPhone: 0800 327 290

Dunedin Phone: 03 477 3753

To contact us:

IN PrIVATeN e WS l e TT e r S u M M e r 2 0 0 8

n e w z e a l a n d e d i t i o n

5 6A N Z P R I V A T E B A N K A N Z P R I V A T E B A N KI N s I g h T B R I E f I N g

like bankers around the

world, Smith has had an

extraordinary year. The sub-

prime mortgage crisis, which

led to the global financial

credit crisis that grew into

an investment banking crisis

and, eventually, a meltdown,

has fundamentally changed the landscape of financial services.

Investment banking, as we have known it for the past two

decades has all but disappeared.

All banks including ANZ have faced challenges form the fallout

and to the great relief of many Australians and New Zealanders,

our banks – again including ANZ – have fared better than most

and remain in the elite group of 14 banks in the world with an

AA rating.

Mike Smith joined ANZ (Parent company of ANZ National Bank

limited) in October 2007, just around the time the credit crisis

was starting to bite. As well as addressing several critical

issues arising from the credit crunch, he also embarked on an

exhaustive review of operations. Mike says the Bank’s strength

is better than ever. He does, however concede that in banking

and finance, some things will never be the same.

“I think the global financial crisis as it is now referred to, is

probably the most significant event any of us have seen in

our lifetimes and in terms of global reach, I don’t think there’s

anybody on the planet who will not be affected in some way or

form by this.” He says.

Despite these words, Mike is buoyant about ANZ’s prospects;

“We have strengthened our capital, we have built up huge

liquidity and have strengthened our provisions so they’re

higher than anybody else in the market. We are one of the best

capitalized, most liquid banks and with one of the best balance

sheets of any bank in the world. We’re as good as it gets, really.

I’m very confident about the future.

“I encourage our customers to feel comfortable and reassured

that the management of ANZ has worked hard over the past year

to ensure that the bank is in the best possible shape to execute

the best business practice and a high standard of service for all

our customers.” IN PRIVATE

m I K E sm I T h , cEo o f A N Z g R o u P ( T h E PA R E N T co m PA N y

o f A N Z N AT I o N A l B A N K l I m I T E d ) g I V Es h I s V I E w o N T h E

g lo B A l f I N A N c I A l c R I s I s .

A view from the top

When it comes to building a portfolio, there are three key factors

that ultimately determine success:

• Having the best available investment knowledge and

expertise to draw on

• Having the best available investment products to

choose from

• Having the independence and objectivity to make the right

decisions. (Arguably the most critical.)

These three principles are at the heart of Private Banking’s

investment approach. In this article, we explain how investment

decisions are made, and how they are put into practice within

each client’s individual portfolio.

At Private Banking, our investment process is a multi-layered

one, starting with our Investment Committee. “The Investment

Committee brings together the best investment knowledge from

right across our wider organisation – and externally as well,”

says Chief Investment Officer Kevin Armstrong, who chairs

the Committee.

The make-up of the Committee also reflects the fact that we operate

in a wider global environment, so it’s crucial to understand what’s

happening in regional and global markets, as well as our own.

Members include our Chief economist, Head of Investments,

Head of Fixed Interest and Head of Markets, plus their broad

equivalents from our parent ANZ in Australia. To provide an

external perspective, independent investment experts from both

countries also sit on the Committee. Kevin says there will also be

representation from Asia in the near future.

“We meet twelve times a year – six in person and six by conference

call – and our role is to create the overall investment view for

Private Banking for the Asia Pacific region. We review data, reports

and opinions on all the major asset classes and markets from

equities through to currencies, commodities and fixed income.

Out of our meetings comes an overarching regional direction that

drives every subsequent investment decision in each country.

“There are no preconceived ideas or agendas. Independent input

means our investment view reflects an objective assessment of

the reality of global markets.”

Once the overall regional investment view has been formulated,

the next step is to access whatever products and investments are

most appropriate to capture that view – regardless of where they

come from.

“Independence is the cornerstone of the Private Banking

service,” says Kevin. “We are not there to sell products but to

meet the needs of our clients. We retain complete freedom to

select the best and most appropriate investments. For example,

we will use Bank products if they are the best fit for the needs of

our clients. But we are also quite happy to use other’s products if

they are the most appropriate and available at the time.”

“We talk to an enormous number of investment product

providers around the world, so we have access to the best

in class. We also draw on information from a wide range of

independent research houses, as well as our own knowledge,

to evaluate those products. Before we recommend any product

it must meet a number of rigorous criteria, but it must also be

appropriate for our investment view.”

While the Investment Committee sets the overall investment

view for Private Banking across the region, putting that view

into practice is the job of another group – the Investment

Management Committee (IMC).

The IMC is charged with establishing the best way to implement

the overall investment view in the New Zealand environment, for

New Zealand investors. They take into account local factors like

the New Zealand tax and regulatory environments, as well as

currency trends, in devising New Zealand asset allocations.

The IMC works closely with our Investment Department to apply

this view to individual portfolios. Portfolios are monitored on a

daily basis to ensure they continue to reflect our investment

view, as well as the individual objectives of each client. Just as

markets are continually evolving, so are client portfolios, in line

with changes in the investment environment and the availability

of appropriate products.

“Our entire process is a very structured and disciplined one,”

says Kevin. “Private Banking invests an enormous amount in

ensuring the integrity and independence of our approach.

And we guard that independence jealously, because we

understand that it is fundamental to our success – and that

of our clients.” IN PRIVATE

With wealth comes complexity, and the growth of the wealth

management industry is a recognition of the issues faced

by many in looking after the different aspects of their

financial position.

Not all offerings match up, according to Head of Private Clients

Kieran Forde.

“One of the difficulties high net worth individuals report in

managing their wealth is having to deal with different providers

for their investments, day to day cash management, insurance,

borrowing, and other requirements” says Kieran. “This

fragmentation makes it difficult to establish a co-ordinated

approach to their situation. It also means that decisions aren’t

always taken with the bigger picture of their whole financial

position in mind.

“everyone’s circumstances and objectives are different. But with

high net worth clients the situation is often more complex and

inter-related, so it’s important to take a truly holistic approach.

And that’s where our Private Bank proposition becomes

really compelling.”

Kieran points to two major advantages for Private Bank clients.

The first is the breadth and scale of our offering; the second is

the narrowness of our focus. At first glance these two factors may

seem contradictory. But they combine to create a unique and

compelling proposition to help create, grow and preserve

your wealth.

from investment to lending – and everything in between

Private Bank offers an unmatched breadth of services – in

fact, no other financial institution in New Zealand has such a

comprehensive offering. What this means for clients is a single,

integrated financial service that covers the entire spectrum of

their financial needs. We offer:

• Investment services which include:

– Fully managed portfolios

– An Investment Advisory service (which allows clients

to benefit from our expertise and access to capital

markets while retaining control of their investments)

– An execution Only service (which provides clients with

access to an experienced Private Banker to transact

their own investment choices).

• lending services – For clients with borrowing requirements,

we offer a wide range of innovative lending solutions,

personalised to meet their specific requirements.

• cash management/day to day banking – We offer all

the essentials of everyday banking as well as enhanced

banking products and a single point of contact.

• specialist services – We help clients manage their risks and

protect their assets through our comprehensive range of

insurances and our estate planning knowledge.

The advantages of scale

The breadth of our offering is enhanced by our position as part

of one of the world’s leading banking organisations. “Our scale

allows us to invest in people and systems,” says Kieran.

“For example, we have access to high quality independent

research from a number of research houses. We are also the

only New Zealand Private Bank with an independent Investment

Committee, which allows us to take a truly objective and highly

informed view of global markets. (see also Independence

is everything in this issue for more about the Investment

Committee).

“It also allows us to leverage our wider organisation by providing

clients with access to investment opportunities that may not

be generally available – for example opportunities in private

equity, unlisted property and mezzanine debt, infrastructure

investments, and more.”

Narrowing the focus

The second major advantage of Private Bank is the ability to

focus on the individual needs of individual clients. Having the

most comprehensive offering is one thing, but the ability to

translate that into specific solutions for each client is key.

Just as no two clients are the same, no two Private Banking

portfolios are the same. They are all tailored to specific needs.

The quality of our relationship with each client is paramount in

this process.

The starting point is always to gain a deep understanding of

your goals, your timeframes, and your attitudes to investing

(particularly your attitudes to investment risk and volatility).

Portfolios are then constructed around these attributes.

Your Private Banker is key to creating and, importantly,

constantly monitoring and fine-tuning where necessary the

service we provide. They also provide a single point of contact

to all of the resources of the wider bank. But our approach is

very much a team one, bringing together a variety of resources

to serve your day to day needs, while retaining our focus on your

long-term goals and requirements.

“It’s the combination of unmatched breadth and scale with

relentless focus on individual needs which makes ANZ

Private Bank such a uniquely compelling proposition,”

says Kieran. IN PRIVATE

Independence is everything

A compelling propositionf o R h I g h N E T wo RT h I N d I V I d uA l s , m A N A g I N g T h E I R

w E A lT h c A N B R I N g I Ts ow N I ss u Es .

What was Sotheby’s telling us? Markets for just about everything have suffered historic reversals, and the

investing environment has changed beyond all recognition. What happens next?

Independence is everything We explore the key success factors in building portfolios,

which are at the heart of ANZ Private Bank’s investment approach.

A view from the top Mike Smith, CeO of ANZ Group, gives his view on the security of

ANZ and The National Bank in light of the global financial crisis.