ANZ BANKING: EXECUTIVE REALIGNMENT REQUIRED

The 2030 Report | CEO Memo | June 2030

FROM: Macro Intelligence Unit TO: CEO, Board of Directors RE: Strategic Reset: Asia Divestment or Commitment? DATE: June 2030 CLASSIFICATION: Confidential - C-Suite

EXECUTIVE SUMMARY FOR LEADERSHIP

ANZ faces a binary strategic choice that cannot be avoided: either commit fully to Asia-Pacific expansion (requiring $5-10B capex and 5-7 year transformation), or divest Asia and focus on Australian market consolidation.

The current "muddling through" approach—maintaining Asia at reduced profitability while slowly losing Australian market share—is the worst outcome strategically and financially.

Recommended Path: Asia divestment (2030-2033) + domestic market consolidation (2033+).

THE BINARY CHOICE

Option A: Asia Commitment - Invest $5-10B in Asia expansion over 5 years - Target: #1-2 position in key Southeast Asian markets (Singapore, Hong Kong, Shanghai) - Expected return: ROA of 0.8-1.0% by FY2035 (vs. current 0.4-0.6%) - Probability of success: 40-50%

Option B: Asia Divestment + Domestic Focus - Divest $180B in Asia assets over 3-5 years ($40-50B annually) - Redeploy capital to Australian mortgages, wealth management, business banking - Target: Grow mortgage share from 16% to 18-20% through acquisition/organic growth - Expected return: Group ROE improves to 11-12% (vs. current 9.8%) - Probability of success: 75-85%

Financial Impact Analysis:

Option A impact (FY2035): - Group earnings: $7.5-8.2B (assuming successful execution) - ROE: 11.2-11.8% - Stock price: $38-42 AUD - Timeline to profitability: 3-5 years - Risk: Very high (execution risk in competitive markets)

Option B impact (FY2035): - Group earnings: $7.8-8.5B (assuming 18-19% mortgage share) - ROE: 11.5-12.2% - Stock price: $40-44 AUD - Timeline to profitability: Immediate (no transition period) - Risk: Moderate (domestic consolidation is proven strategy)

Recommendation: Option B is superior on risk-adjusted return basis.

STRATEGIC INITIATIVE 1: THE ASIA DIVESTMENT ROADMAP

Phase 1 (2030-2031): Announce Intent & Organize - Public announcement of Asia portfolio review and divestment plan - Organize Asia business into discrete units for sale - Target: Divest 30-40% of Asia assets ($60-70B) - Expected proceeds: $8-12B (pricing dependent on buyer, market conditions) - Use proceeds to reduce debt and fund Australian expansion

Phase 2 (2031-2032): Execute Divestments - Sell non-core Asia operations (branches, wholesale operations in non-core markets) - Sell or partner on retail banking operations in secondary Asia markets - Retain only high-ROI Asia operations (typically: corporate banking, wealth management in Singapore, Hong Kong) - Target: Divest 50-60% of Asia assets ($90-110B) - Expected proceeds: $15-25B cumulatively

Phase 3 (2032-2033): Optimize Remaining Asia - Consolidate remaining Asia business to core markets/products - Convert remaining Asia operations to profit centers with clear ROA targets - Asia should represent <20% of group assets by FY2033 - Remaining Asia operations should target 0.9-1.1% ROA (vs. current 0.4-0.6%)

Expected Financial Impact: - Capital freed up: $15-25B - One-time divestment gains: $2-4B (phased over 3 years) - Group earnings accretion from better capital allocation: $150-250M annually by FY2034

STRATEGIC INITIATIVE 2: THE AUSTRALIAN MARKET CONSOLIDATION

Objective: Grow ANZ mortgage market share from 16% to 19-20% by FY2034.

Path 1: Organic Growth (Primary) - Aggressive pricing in mortgages (accept slightly lower margins in exchange for volume) - Partner with mortgage brokers (increase distribution without branch expansion) - Digital mortgage platform enhancement (faster approvals, better customer experience) - Relationship managers in business banking (capture small business banking, which has stronger margins)

Expected outcome: +1-1.5% mortgage share gain over 3 years

Path 2: Acquisition (Secondary) - If suitable acquisition targets emerge (smaller regional banks, fintech lenders), consider $3-5B acquisition - Regional bank acquisition could add $0.5-1.0% mortgage share - Fintech acquisition could add $300-500M annual net interest income (if acquired at reasonable valuation)

Expected outcome: +0.5-1.0% mortgage share gain from acquisition

Total target: 19-20% mortgage share by FY2034

STRATEGIC INITIATIVE 3: THE COST STRUCTURE RESET

ANZ's cost-to-income ratio (44%) is 1-2 percentage points higher than CBA/NAB due to: - Larger Asia footprint (higher cost, lower revenue) - Smaller scale than CBA in core markets - Legacy technology platform (more expensive to operate)

Recommended Reset: - Target: 39-40% cost-to-income by FY2034 (vs. current 44%) - Path: Combination of branch closures, automation, and offshoring

Specific actions: - Close 50-70 low-productivity branches (mostly in Asia exit, some in Australia) - Automate back-office (target: 20% reduction in operations FTE) - Offshore non-critical functions (finance, HR, data processing) to India/Philippines (target: $150-200M annual savings) - Technology consolidation (migrate Asia legacy systems to Australia platform)

Cost savings trajectory: - FY2030: $200M savings realized - FY2031: $400M cumulative savings - FY2032: $600M cumulative savings - FY2033: $800M cumulative savings (full run-rate)

COMMUNICATION & STAKEHOLDER MANAGEMENT

This strategy requires clear communication to prevent market misunderstanding (Asia divestment as "weakness" vs. "strategic strength").

Investor Communication: - Frame as: "Strategic capital reallocation from low-ROA Asia to high-ROA Australian core business" - Emphasize: ROE improvement trajectory (10.2% FY2030 → 11.8% FY2034) - Provide: Clear financial milestones and tracking metrics

Employee Communication: - Acknowledge: "Some roles will be impacted by Asia divestment and Australia restructuring" - Provide: Voluntary redundancy and redeployment first (mandatory layoffs only if necessary) - Emphasize: "Transformation creates opportunity in growth areas (mortgages, wealth, business banking)"

Asia Stakeholders: - Provide: 2-3 year notice on Asia divestment - Offer: Opportunities for local management buyouts (if commercially viable) - Position: "ANZ values the Asia market; we're transitioning to a more focused, higher-return model"

RISK MANAGEMENT

Risk 1: Divestment Valuation Risk (Probability: 20-25%) If Asia asset valuations fall 15-20% due to market conditions, divestment proceeds could be $12-15B (vs. $18-25B base case). This would reduce capital redeployment benefit.

Mitigation: Execute divestments in phased approach; be patient on timing; don't feel forced to sell at distressed prices.

Risk 2: Housing Market Stress During Transition (Probability: 25-30%) If Australian housing market stress accelerates during FY2031-2032 (when ANZ is executing divestments and organic growth plans), mortgage volumes could decline, offsetting gain from share growth.

Mitigation: Build mortgage loss provisions early; maintain disciplined underwriting; position mortgage product competitively.

Risk 3: Execution Risk in Domestic Consolidation (Probability: 30-35%) If ANZ fails to gain mortgage market share through organic/acquisition channels, domestic consolidation strategy fails.

Mitigation: Clearly define mortgage market share milestones; track quarterly; adjust strategy if not achieving targets.

RECOMMENDATION

The current strategic positioning (maintaining Asia at low profitability, slowly losing Australian market share) is untenable. Board should commit to Option B (Asia divestment + domestic consolidation) and execute over 3-4 year horizon.

This strategy is achievable, lower-risk than Asia commitment, and delivers superior financial returns.

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