Comparative Analysis of NAB and ANZ: Corporate Finance Group Assignment

This report provides a comparative analysis of National Australia Bank and ANZ Bank, including major shareholders, executive management, directors, compensation of directors and top executives, equity composition, debt structure and sources of debt.

1
FINA2001 Corporate Finance
Group Assignment

2
Contents
Introduction......................................................................................................................................3
Comparative Analysis of NAB and ANZ........................................................................................4
Major Shareholders..........................................................................................................................4
Executive Management...................................................................................................................5
Directors of the Company................................................................................................................7
Compensation of directors and top executives..............................................................................11
Equity Composition of both the companies (including issue of any new shares).........................13
Debt structure and sources of debt.................................................................................................14
Dividend Policy.............................................................................................................................15
Mergers and Restructuring............................................................................................................15
Value of the Stock and comparison with the current market values.............................................16
Conclusion.....................................................................................................................................18
References......................................................................................................................................20

3
Introduction
Knowledge of the corporate finance is very essential to make decisions regarding various
business processes such as capital funding, valuation of company stock and bonds and many
other similar decisions. There are many ways to raise the capital funds but it is essential to
choose the best method according to the requirement and structure of company. Comparative
analysis between two companies provides financial information regarding the companies chosen
and provides deep insight into the financial performance companies selected (Horngren, 2012).
In this report comparative analysis of major banking sector companies of Australia has
been examined using detailed analysis of annual reports of the selected companies of last three
years. The companies selected for this purpose are National Australia Bank and ANZ Bank. Both
of these bank rank among top 10 banks of Australia. In this report comparison has been
performed between both the Australia Bank that includes detailed information about the major
shareholders of the companies, executive management of the company, directors of the
company, compensation provided to the directors and top executives, dividend policies and
comparative evaluation of the performance of the companies and valuation of stock.
Recommendations and conclusions will also be provided on whether it is beneficial to buy the
shares in companies or not. For the purpose of the comparison annual reports of year 2014, 2015
and 2016 has been taken as annual report of year 2017 of ANZ is not available yet (Giovanis,
2010).

4
Comparative Analysis of NAB and ANZ
Major Shareholders
Below is the list of the major shareholders of the NAB as described in annual report of
year 2016 is as under. Only such shareholders are named here that poses 5 % or more
shareholding during the year.
Name of Shareholder Number of
Shares
Percentage
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 561,686,718 21.14%
J P MORGAN NOMINEES AUSTRALIA LIMITED 338,106,136 12.73%
CITICORP NOMINEES PTY LIMITED 137,574,120 5.18%
(NAB Annual Report 2014, 2015 and 2016)
Below is the list of the major shareholders of ANZ Bank during the financial year 2016.
This data has been extracted from annual report of year 2016. The shareholders are provided here
have shareholding of 5 % or more.
Name of Shareholder Number of
Shares
Percentage
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 592,529,071 20.24%
J P MORGAN NOMINEES AUSTRALIA LIMITED 398,719,922 13.62%
NATIONAL NOMINEES LIMITED 207,699,829 7.09%
CITICORP NOMINEES PTY LIMITED 189,889,027 6.49%
(ANZ Annual Report 2014, 2015 and 2016)

5
Executive Management
Executive management of any company is responsible for day to day activities and to
make the important decisions in the business process. The management people are very
important people in the organization and they are considered as the leaders who lead the
company to the right path.
The executive team of the National Australia Bank is provided below:
Name of the Executive
Officer
Position in the company Other Information
Andrew Thorburn GROUP CHIEF EXECUTIVE
OFFICER & MANAGING
DIRECTOR
Has hold the position in
August,2014
Mike Baird CHIEF CUSTOMER
OFFICER – CORPORATE
AND INSTITUTIONAL
BANKING
Has hold this position from
April, 2017
Antony Cahill CHIEF OPERATING
OFFICER
Has hold this position from
August, 2016
Sharon Cook CHIEF LEGAL AND
COMMERCIAL COUNSEL
Has hold this position from
April, 2017
David Gall CHIEF RISK OFFICER Working in senior
management since 2008
Andrew Hagger CHIEF CUSTOMER
OFFICER - CONSUMER
Has hold this position from
August, 2016

6
AND WEALTH
Anthony Healy CHIEF EXECUTIVE
OFFICER BANK OF NEW
ZEALAND
Working at this position from
May 2014
Gary Lennon CHIEF FINANCIAL
OFFICER
Has hold this position from
March
Angela Mentis CHIEF CUSTOMER
OFFICER, BUSINESS &
PRIVATE BANKING
She hold this senior position
from August, 2016
(NAB Annual Report 2014, 2015 and 2016)
The executive management list of person in the ANZ Bank and it is given below:
Name of the Executive
Officer
Position in the company Other Information
Shayne Elliott Chief Executive Officer He has been appointed CEO
of ANZ 1 January, 2016
Maile Carnegie Group Executive Digital
Banking
She joined ANZ in year 2016
at this post
Farhan Faruqui Group Executive International He has joined the ANZ in
August 2014
Gerard Florian Group Executive Technology He has joined at this position
since January 2017
Alexis George Group Executive, Wealth
Australia
She has joined ANZ in year
2013 as the Managing

7
Director
David Hisco CEO New Zealand and Group
Executive, Asia Wealth,
Pacific and International
Retail
He spent almost 30 years of
life at ANZ and has been
appointed at this position in
year 2016
Graham Hodges Deputy Chief Executive
Officer
Has joined at this position in
May 2009
Michelle Jablko Chief Financial Officer She joined at this position in
July 2016
Fred Ohlsson Group Executive, Australia Joined since February 2016
(ANZ Annual Report 2014, 2015 and 2016)
Directors of the Company
The members of board of directors of NAB and ANZ and their information are discussed
as follows:
NAB
Board Of Directors Position Information
Kenneth R Henry C Non-executive director
and Chairman
Have 30 years of experience
in economic, policy and
governance.
Andrew G Thorburn Group Chief Executive
Officer
Have significant experience
in banking and finance and
has also served as Managing

8
director and CEO of the
Bank of New Zealand.
David H Armstrong Non-executive director Have significant years of
experience in professional
services and posses in-depth
knowledge in banking and
capital markets
Philip W Chronican Non-executive Director Have significant experience
ion banking and finance in
Australia and New Zealand.
Peeyush K Gupta Non-executive Director Have 30 years of experience
in wealth management and
has served the responsibility
of the director of many
corporate
Anne J Loveridge Non-executive director Have 30 years of experience
in the financial services
having wide knowledge in
banking sector.
Geraldine C Mcbride Non-executive director Former President of global
software company SAP and
also served the role of CEO
at Mywave company.
Doug A Mckay Non-executive director Member of the board audit

9
and nomination committee
in the company. Have a
significant knowledge an
experience in the Australian
banking market.
Ann C Sherry Non-executive director Have significant experience
in the banking and tourism
industries in Australia and
New Zealand.
Anthony K.T. Yuen Non-executive director Have over 40 years
experience in international
banking and finance and has
served the role of senior
executives in many banks.
(NAB Annual Report 2014, 2015 and 2016)
ANZ
Board of Directors Member Position Information
David Gonski Chairman and independent
non-executive director
He is an ex-officio member
of the board committee of the
company. He is regarded as
the most respected business
leader in the Australia
Shayne Elliott Chief-executive officer and Has over 30 years of

10
executive director experience within banking
sector of Australia.
Llana Atlas Independent non-executive
director and chairman of the
human resources committee
Has strong background in
financial services and legal
experience. He has also
worked at senior executive
roles in Westpac.
Paula Dwyer Independent non-executive
director and chairman of the
audit committee
Extensive experience in
financial markets and risk
management
Jane Haltom Independent non-executive
director
Has joined the company in
2016 and is also a member of
the human resources
committee of the company
Lee Hsein Yang Independent non-executive
director
Has joined the company in
the year 2009 and is also a
member of the risk
committee
Graeme Liebelt Independent non-executive
director
Has over 23 years of
experience off senior
executive roles in strategy
development
(ANZ Annual Report 2014, 2015 and 2016)

11
Compensation of directors and top executives
National Australia Bank (NAB)
The compensation of the directors and top executives of the bank are decided by the
remuneration committee developed by the board of directors. The remuneration framework is
developed as per the section 300A of the corporations Act 2001 (NAB Annual Report 2014,
2015 and 2016). The remuneration of the senior executives comprises of fixed remuneration and
short and long-term incentives based on their performances. The remuneration structure can be
illustrated as follows:
(Source:https://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder%20centre/
documents/2016-annual-financial-report.pdf )
ANZ
The remuneration of the senior executives is developed on the basis of the Corporations
Act 2001 and comprises of fixed and variable remuneration (ANZ Annual Report 2014, 2015

12
and 2016). The fixed remuneration comprises of basic salary while variable consists of the
benefits achieved by the executives on the basis of their performance and can be illustrated as
follows:
(Source: http://shareholder.anz.com/sites/default/files/anz_-_annual_report_2016.pdf)
Equity Composition of both the companies (including issue of any new shares)
Equity is classified as the composition of the equity shares and other equity securities.
List of composition of equity in case of the Company NAB as provided in 2016 annual report as
given as under:
Particulars 2016
($m)
2015
($m)

13
Issued and paid-up ordinary share capital
Ordinary shares, fully paid 30,968 31,334
Other contributed equity
National Income Securities 1,945 1,945
Trust Preferred Securities 975 975
National Capital Instruments 397 397
Total contributed equity 34,285 34,651
(NAB Annual Report 2014, 2015 and 2016)
NAB has issued new shares under Dividend reinvestment plan (DRP) of amount 596 million
dollars in year 2016.
In case of ANZ bank the details of the composition of the equity are given under notes to
accounts section below the financial accounts of the company. The equity of the ANZ comprises
of the ordinary shares, Dividend reinvestment plan, Group share option scheme, Group employee
share acquisition scheme, Share placement and Share purchase plan and Treasury shares in
Wealth Australia. The detail of this composition is given as below.
Particulars 2016
($m)
2015
($m)
Ordinary share capital
Balance at start of the year 28367 24031
Dividend reinvestment plan 413 1122
Group share option scheme 0 2
Group employee share acquisition scheme 138 1
Share placement and Share purchase plan 0 3206

14
Treasury shares in Wealth Australia (153) 5
Total contributed equity at the end of year 28765 28367
(ANZ Annual Report 2014, 2015 and 2016)
During year 2016, company has issued 9.7 million shares in respect to Dividend
Reinvestment Plan and Bonus Option Plan. Apart from this company has also issued 5.3 million
shares in order to complete the obligations of the Group’s Employee share acquisition plans.
There has been issue of 80.8 million ordinary shares as per the investment plan of Institutional
Share Placement and also 27.3 million ordinary shares in option of Retail Share Purchase Plan.
Debt structure and sources of debt
The debt structure of the NAB bank comprises of bonds, notes, subordinated debt and
other debt sources. The major sources of debt utilized by the bank includes commercial paper,
notes, term loans, medium-term notes, mortgage backed securities and other debt issues. On the
contrary, the ANZ bank major sources of debt are as follows accrued expenses, securities sold
short, liability for acceptances, creditors, defined benefit plans and other liabilities.
Dividend Policy
 NAB: The NAB bank offers cash dividend policy to its shareholders. The cash dividends
will be paid in credit directly to the shareholders in their financial accounts or though
Australian dollar cheque. In addition to this, the dividend reinvestment plan of the bank
provides the opportunity to the shareholders to reinvest for buying more NAB shares
(Dividend Information (NAB), 2017).

15
 ANZ: The ANZ bank has mainly cash dividend policy in which the dividend is paid to
all the shareholders in Australia, New Zealand and United Kingdom directly through
credit in their respective financial accounts. In addition to this, the bank also provides a
Dividend Reinvestment Plan (DRP) and Bonus Option Plan (BOP) as an alternative to
receive cash dividends. Also, the bank has offered a Dividend Charity Donation Program
through which its Australian shareholders are provided with the opportunity to donate
their dividends to some charities (Dividend Information (ANZ), 2017).
Mergers and Restructuring
The ANZ has undergone merger with the National Bank of NZ in order to enhance its
market competitiveness. The merger has caused huge corporate restructuring in the bank
operations. The merger has proved to be highly beneficial for the bank in order to achieve
customer satisfaction.
On the other hand, the NAB bank has demerged with CYBG resulting in distribution of
its shares of overall value of $2,645 million to the shareholders of the NAB. The bank has
undergone major restructuring after its demerger resulting in transforming its operational
activities to a major extent.
Value of the Stock and comparison with the current market values
There are various methods to calculate the intrinsic value of the stock. Intrinsic value of
stock means value of overall assets of the company less available liabilities with companies. It is
can also be said that it is net worth of the company divided by number of shares. One of the
popular methods to determine the intrinsic value of the company is dividend discount model.
Under this method, current year dividend and expected growth rate in dividend is used to

16
determine the value of the stock of the company in particular year or time. As per this model the
intrinsic value of the stock of the company is present value of all the future dividends (Brigham
& Ehrhardt, 2007). So the formula to calculate the intrinsic value of the stock as per the dividend
discount model is as given under:
 P stands for stock price as per dividends
 D1 stands for expected dividend for the next year; it is based on the historical growth rate
of the dividend
 r stands required rate of return
 g stands for the dividend growth rate
In this part calculation is made using the Excess return model which is based on the
dividend growth model. Here value of equity is equal to book value per share + terminal value of
excess return. All the calculation made here is for current period.
Intrinsic value of NAB
Book value per share as given in the annual report: $19.71
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth
Rate)
Excess return is equal to: (Stable Return on equity – Cost of equity) (Book Value of
Equity per share)

17
= (13.11% – 8.62%) * $19.71 = $0.88
Terminal Value of excess return = $0.88 / (8.62% - 2.76%)
= $15.06
Value of Equity (NAB) = $34.77 ($19.71+$15.06)
Current Share price of the company $102
(All these data has been taken from the website:
https://simplywall.st/ASX:NABPA/national-australia-bank )
Recommendations: It is highly recommended that investor must buy the shares as the
market price of the share is much greater than the intrinsic value of the company.
Intrinsic value of ANZ
Book value per share as given in the annual report: $21.63
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth
Rate)
Excess return is equal to: (Stable Return on equity – Cost of equity) (Book Value of
Equity per share)
= (12.13% – 8.62%) * $21.63 = $ 0.76
Terminal Value of excess return = $0.76 / (8.62% - 2.76%)
= $12.92

18
Value of Equity (NAB) = $34.55 ($21.63+$12.92)
Current Share price of the company $28.77
(All these data has been taken from the website:
https://simplywall.st/ASX:ANZ/australia-and-new-zealand-banking-group?
id=199658&l=1&s=1&t=vagevafvp_inyhr_rkprff_ergheaf&unique_symbol=ASX
%3AANZ&utm_medium=finance_user&utm_source=post#close )
Recommendation: It is advised to the shareholders that not to invest in this company
rather try to sell the shares at some higher price in future time period.
Conclusion
On the basis of overall comparative analysis of the both the banks it can be said that
performance of the NAB is much better than the performance of the ANZ. The market value of
the ANZ is lower than the intrinsic value of equity stock of the company that shows company is
not performing as compare to the capital employed by the company. NAB has very good market
value of the company as compare to its intrinsic value that makes it a good buyer option for the
investors.

19
References
ANZ Annual Report. 2014. Retrieved online 30 November, 2017 from
http://shareholder.anz.com/pages/annual-report-archive
ANZ Annual Report. 2015. Retrieved online 30 November, 2017 from
http://shareholder.anz.com/pages/annual-report-archive
ANZ Annual Report. 2016. Retrieved online 30 November, 2017 from
http://shareholder.anz.com/pages/annual-report-archive
Brigham, E. & Ehrhardt, M. 2007. Financial Management: Theory & Practice. Cengage
Learning.
Dividend Information (ANZ). 2017. ANZ. Retrieved online 30 November, 2017 from
http://shareholder.anz.com/dividends
Dividend Information (NAB). 2017. NAB. Retrieved online 30 November, 2017 from
https://www.nab.com.au/about-us/shareholder-centre/dividend-information
Giovanis, A. 2010. Application of Capital Asset Pricing (CAPM) and Arbitrage Pricing Theory
(APT) Models in Athens Exchange Stock Market. GRIN Verlag.
Horngren, C. 2012. Financial Accounting. Pearson Higher Education AU.
NAB Annual Report 2014. Retrieved online 30 November, 2017 from
https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/
reports-and-presentations/annual-reports-archive.

20
NAB Annual Report 2015. Retrieved online 30 November, 2017 from
https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/
reports-and-presentations/annual-reports-archive.
NAB Annual Report 2016. Retrieved online 30 November, 2017 from
https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/
reports-and-presentations/annual-reports-archive.