Adelaide and Bendigo banks joint investor briefing transcript

Adelaide Bank and Bendigo Bank
Transcript of a joint investor briefing
Re their planned merger, and their respective profits for the year to June 2007
Adelaide
9 August 2007

Adele Lloyd, chair, Adelaide Bank: Good afternoon ladies and gentlemen, thank you for joining us today on such short notice. I trust that you have all had a chance to at least absorb the highlights of the proposed merger of Bendigo Bank and Adelaide Bank, announced earlier today. As you will appreciate, given the significance of this announcement, both Rob and Jamie have fairly full agendas today, so we wanted to get an early start. Joining me in Adelaide today is my fellow chairman of Bendigo Bank, Robert Johansonn, as well as the managing directors of Bendigo and Adelaide Banks, Rob Hunt and Jamie McPhee respectively.

As you would understand, today is a very historic day, for both Bendigo Bank and Adelaide Bank, and for all our stakeholders, including our employees, shareholders, partners, and customers. With this merger, we are creating an innovative customer and partner-focused banking force in the financial services landscape of this country. We are doing so by bringing together two very unique, yet complimentary cultures and product offerings, creating additional value for our shareholders, and, importantly, doing so without impacting at all on how our customers will interact with us.

Both boards strongly believe that this merger is compelling on many levels, and unanimously recommend to shareholders that it proceed. I'll let Rob and Jamie talk you through the detail of the proposal, but some of the headline aspects of today's announcements are: this will be a script-for-script merger via an Adelaide Bank scheme of arrangement. So, it will need the support of Adelaide Bank shareholders to proceed. Shareholders will receive 1.05 Bendigo Banks shares per Adelaide Bank share owned. Bendigo Bank shareholders will own approximately 55% of the combined entity, and Adelaide Shareholders, approximately 45%. This is commensurate with the earnings contributions of the combined entity. The name of the combined entity will be Bendigo and Adelaide Bank Limited. The name change will be put through a combined company shareholders at an EGM expected to be held in 2008.

The combined identity will have 12 board members, seven from Bendigo Bank, and five from Adelaide Bank. Those of you who are familiar with our organisations, will recognise that each of the current boards will drop off two members to form the merged board. Robert Johanson will be chairman of the combined entity, and Kevin Osborne, currently of Adelaide Bank will be the deputy chairman. I should just say on my own behalf, that while I'm extremely pleased and honoured to be appointed to the board of the merged group, for personal business reasons, I am of the view that I cannot commit the necessary time to the very important deputy chair role. Rob Hunt of Bendigo Bank will be managing director, and Jamie McPhee will be appointed to the board as an executive director, with responsibility for the wholesale business of the combined group. There are a number of conditions to be satisfied for the merger to proceed, they include approvals by APRA, the ACCC, and from the treasurer, Adelaide Bank shareholder approval, and the court, and that there are no prescribed occurrences, and no material adverse changes.

There is a mutual break fee of $15 million, the details of which are contained in the MIA [merger implementation agreement]. For my part, I would like to thank the board, and management team of Bendigo Bank for the very professional manner in which this merger has been negotiated. Without further delay, I will hand the agenda over to Robert Johanson to make some introductory comments. He will be followed by Rob Hunt, and Jamie McPhee, who will work through the presentation this morning, and explain the strong, strategic and operational rationale for the merger. Thank you Robert.

Robert Johanson, chair, Bendigo Bank: Thanks Adele. Since our two organisations became banks from their old building society days, each of us has specialised strategically, really quite different into the market. Bendigo has focused and become well-known for its very strong retail brand, and its business amongst retail customers, we've been acknowledged as one of the most innovative and entrepreneurial banks in that end of the market, and Adelaide has become a highly specialised and innovative player in the wholesale end of the market. And now those decisions were made through that time, so that we could each build â€¦ each of us made separate decisions to build stronger businesses for ourselves. And now the opportunity is to bring those together. So we see that this merger enhances both our businesses, by opening up opportunities to each of our businesses, that come from the strength of the others.

There will be some substantial savings that have come out of putting the two businesses together, but we wouldn't be doing it for the savings. The opportunity is, that out of this merger, we can create a much stronger, broader, deeper business, able to compete across all the sectors in which we currently compete, but also generate a lot of other opportunities for our customers. Both our businesses have thrived, and thrive, I can say, because each of us of today, announced our annual results, which I'm sure you all see when you look at them, how well each of us have performed over the last year. We've each â€¦ we've each thrived by doing that, and now by coming together, we are able to make a much better business.

So what I'll now do, is hand over to Jamie first, who'll talk about the â€¦ the Adelaide results, then Rob will talk about the Bendigo results.

Jamie McPhee, managing director, Adelaide Bank: Yeah, thank you Robert, and welcome everyone. I know obviously the main focus of today is going to be about the merger and the proposed merger, but I really would like to just spend a couple of minutes talking about Adelaide Bank's results, 'cause as Robert just mentioned, they are a strong set of results. We have announced a record cash earnings profit of $104.3 million, which is our seventh consecutive record result. Through the year, we've actually managed to drive our efficiency of our business down, so the cost of income ratio now, 48%, and our earnings, EPS growth has come at the higher end of our stated range, which was 6% to 9%, in at 9.1%. And we've also â€¦ the board has announced a 12% increase in our dividend over the full year, to a full year dividend of 65 cents. So they're a set of results as an organisation that we're reasonably proud of.

I think one of the really interesting make-up of our results this year, is the diversification of our income stream. Ironically, of the four businesses that we run, retail banking, wholesale mortgages, wealth management, and business lending, those business units each contributed between 23% and 26% of the group's earnings, so we have a very diversified earning stream, and that's something we've been communicating to the marketplace for some time, which has been a goal of the company.

You'll see three of the businesses showed very strong growth, the business lending, wealth management, and retail banking. The wholesale mortgage business has declined over the last few years, and as profit contribution to climb further this year. However, what I can say, is we did a full strategic review of that wholesale mortgage business, and the initiatives that we implemented, the return of increased profitability of that business is already starting to flow through, and that will be achieved in the financial year, 2008.

Something else in that business that we're very pleased about, is our level of arrears, is the lowest level it's been since December '05, so again, the credit quality of that portfolio is [unclear] for some period of time. So that's the results of 2007. As I said before, at the upper end of our earnings guidance. So what's our earnings guidance going forward? The bank is committing itself to returning to double-digit EPS growth for 2008. So with those Adelaide Bank results Rob, I might hand over to you if you â€¦ and you can go through the Bendigo Bank results.

Rob Hunt, managing director, Bendigo Bank: Yeah, thank you very much Jamie, and thanks everyone for their interest. I think they are two â€¦ two sets of very, very good results, and probably show how both businesses are now starting to gather some momentum in the â€¦ in their â€¦ in their respective and chosen strategies. Bendigo's results, I think are equally â€¦ equally strong, we've seen â€¦ we've seen a good growth in the cash earnings over the year, the report was impacted by, primarily, there was an accounting issue around the [unclear] scheme, which was different this year to previous years. There's no change in the scheme that we've been operating now for some years, but really, a 15.6% increase in cash earnings. Cost to income did come down a little, but being very retail based, and being â€¦ being an organisation that's still rapidly expanding that distribution part of our business, we â€¦ we've always said that this will be an orderly reduction in cost to income.

The cash EPS was above the guidance, we had â€¦ we had I think, put out a 12% improvement in cash EPS, there was â€¦ we ended up achieving 13.3, and we also increased the dividend stream for shareholders. To a large degree, this is just â€¦ this strategy now starting to gather some momentum and maturity. A good portion of our distribution network today is still in the very early stages of maturity, and we'd expect that to â€¦ you know, that to continue to put forward good growth and contribution in the future, so it's just continued progress. With that consistent, and almost very, very disciplined approach to the way in which we have been expanding our business, we've always done that with the view that we would be making investments, expanding the business, but also delivering to shareholders, the sort of returns you'd expect for a â€¦ for a business in this environment.

So we really see it as a â€¦ you know, a very good result, the margin, very, very strong margin, but that really reflects the retail nature of our business, the mix and depth of the â€¦ of the business, and the strong retail deposits, and I guess that just reflects the chosen strategy. So we're very happy with the result, and in fact, for both results, given that there's another issue that we're talking about today, I don't want any of the results to be lost in this process, and so clearly, we have lots of people available to answer questions, and to follow through on any detail people want on the actual results.

Now, look, I â€¦ we'd now like to just move through to, I guess the, you know, some of the rationale, some of the reasons why we felt very, very strongly, why these organisations would come together and create, I think a much stronger one than either one in its own right, and what I wanted to do with this, so we've got the slide here, and we'll talk through a few of those points, but what I wanted to do, was just share with you, a view on why I think this is really very, very solidly based in strategy. This in fact, has always been, we've watched with interest, the growth of Adelaide Bank, and the way in which they've specialised in this way, of servicing customers at the other end of partner business. We too have a partner business in some parts of our retail distribution with our community banks, our joint ventures and alliances. But we've watched with interest, but as you know, when you're a small organisation, and you're looking to grow your business, you can't be in every segment, or every facet of the market that you may like to be. We chose the retail strategy, because we felt that was the best suited to the skill base we had, the competencies and the ability to deliver real value for shareholders.

Clearly, Adelaide Bank chose what they were capable of delivering to customers, with some changing market environment, with the advent, or the increase in broker use by customers, it clearly specialised in those earlier days around wholesale mortgages, and we actually watched these two businesses grow their strategies, knowing that neither one of us could actually venture into each others' territory, because you can't do everything at the same time. So there have been many discussions over the years about the prospect of you know, coming together, and seeing whether there is a â€¦ seeing whether there is, in fact, a meeting of the minds. But we were both focused at that time, on still growing and gaining credibility of our respective strategies. So we didn't want to have any diversion of those strategies for fear that we'd actually lose our focus. So from my point of view, this â€¦ the strategic discussions had gone on for some time, and in fact started to gain momentum around, I think February, where we really started to have, I guess, a lot â€¦ a lot more detailed informal discussions, about whether the two organisations were ready to bring the two attributes that we had to create, you know, a very strong organisation.

We always saw the fact that we had â€¦ there were different strategies, that's what actually, in some ways, makes them very, very complimentary, and very, very able to be joined. And the way I always explained the business, you know, that Bendigo has, I've basically categorised into four major elements of banking, there is distribution, product, balance sheet and risk, and technology, are the things that influence our ability to deliver services to customers. In the early day, we focused very heavily, 'cause we'd chosen the retail strategy, very heavily on the retail expansion, the distribution expansion. The next year we did â€¦ still did the distribution expansion, but we started to add value to product, or add layers of product, all the time, managing to try and focus on how â€¦ what's the best balance sheet for this business, and â€¦ and in some ways, desensitise the front of the business from having to worry about which â€¦ whether it was on a bank balance sheet, or where it â€¦ where it was actually destined, knowing that the products that the customers needed, were not all going to be manufactured by Bendigo, and having a technology base that was actually capable of doing that.

And that focus has been, all along, we've focused on building the retail business. If you actually look at it that way, and we said after a while, we needed to build our wealth management business to complement that distribution of retail services. So we started the next â€¦ next thing we could do, once we'd started to gain momentum in the banking element, was the wealth management. All the time, we had this little thin layer in that structure, using distribution, product, balance sheet and risk, and technology, was the thing we call, you know, a very limited role in wholesale banking.

And what I see now, is the prospect of bringing the two businesses together, to really build substantial skill and competency into that wholesale element of that business, all the time, focusing on how well we can do distribution to the various customer bases that we serve, how well we can build product that would be relevant to those customers, what balance sheet we would like to actually employ the assets and liabilities that are appropriately servicing our customers, and having a technology base that actually enables us to do that.

We've always been convinced that it has always been our preferred â€¦ you never actually get a chance to choose this, but it was always our preferred partner to do a merger, because of the complimentary nature of this, and the very strategic way â€¦ you could basically fill in very large â€¦ very large gaps that each of us might've had in ultimate of a â€¦ of a combined entity, but do it in a way that was actually good for both shareholders. So Jamie, that's the rationale, and the way in which we've approached it, but I'd be interested in what you â€¦ you know, the process that you've taken.

Jamie McPhee: Yeah, thanks Rob, and it's probably hard to spend too much of that, but I would actually like to share the journey that we've been on, since I stepped into the role of managing director in December of this year. It's been a â€¦ it's been a fascinating seven or eight month period. The way we approached it, was looked at, how do we really, as an organisation, unlock the value in the organisation? And we were very confident there was value in our organisation that was yet to be optimised. And, as we went through this â€¦ this thinking process, we announced a new orgnaisational design to the marketplace in June, for the people that remember that, we split our businesses down into four, and interestingly, Rob talked about Bendigo splitting their businesses down into four streams, we did the same thing, but we switched from product centric focus, which we had had previously, very much to a market segment focus, or a customer or partner segment focus. And we went out with these four businesses, of retail banking, wholesale mortgages, business lending and wealth management. The commitment that we, as an organisation, gave to the marketplace at that time, was that we will run those businesses optimally on behalf of our shareholders, indeed all our stakeholders. And that's something we've really been focusing very heavily on. How do we run these businesses optimally?

And as Rob said, I mean when we looked at our retail business, we were clearly underweight, and it was no different to â€¦ exactly as Rob said, where you've got limited resources, you can only focus on so many things at once. And we had, and are proud of the wholesale capability that we'd built up across our business. So we sat there and said, how do we get value out of that retail part of our business? And that really started our thinking about what options were available to us, and honestly, it became a pretty compelling argument in relation to the proposed merger here with Bendigo, because you just sat back and looked at the different business models out at the marketplace, and what a fantastic retail business model these guys are running, I mean you talk about 1.1, 1.2 million customers, a large deposit base, 350 â€¦ in excess of 350 points of representation.

Now, for us to think that we were going to achieve that organically is clearly just not practical, so therefore, it just became very obvious to us, as an organisation, that entering into dialogue with Bendigo was the right thing to do, to unlock that value, and that's honestly the journey that we've been through over the last seven or eight months, and what brings us to the table today.

And now it's in this proposed merger to the marketplace, so Rob, that's the â€¦ that's really been the journey from our perspective.

Rob Hunt: I think it's important that we actually hear that, because this is the journey that as two chief executives of businesses, that have really been very focused and disciplined throughout their strategy, actually saw that there was a chance, and both boards clearly have seen that as well, that there was a chance of bringing the two organisations together to create a much more robust, much more able organisation into the future, one with a far more diversified revenue stream.

But just running through these things, this is a merger. It is a merger based on a partnership approach, has been right through the discussions, and will continue from this day. This is the best way to protect the current value that's been created in the two businesses, it's the best way to grow the new value, from the things that will actually emerge. Not just the synergies, but the things that will emerge in bringing these teams together. The alignment of culture, we both come from similar cultures, but we do actually â€¦ we've developed different competencies, and we've had different strategies, but I actually see them as being very, very compatible organisations.

Where others may well see the strategies as being very different, and therefore you would have difficulty joining, that's exactly why we think that that's what makes it complimentary, that's what makes this doable, that you actually have very little overlap, the synergy will be achieved, but we will actually be able to develop you know, very, very, very complimentary services across the border group. It will consist of quite a degree of revenue diversification, geographic extension. It will create significant value, as I said, both in the shorter term, when we're actually focusing on bringing the organisations together around the synergies, and getting the most effective organisation to take forward. But it also gives me a high degree of confidence around integration of these businesses. We have a commitment to preserve the brands, the head offices where the skill is, that would make sense to make sure that we don't actually meddle with something that is actually clearly working. And from my point of view, we're very fortunate in some ways as well, we both actually operate on the same core banking system, which is actually one big plus, and when you're bringing organisations together, where it has, or could potentially have an effect on customers.

But what I want to just briefly just chat over, I'm not going to go through all this slide, but the way in which we've looked at leveraging the strengths of the both companies, is really, I think, pictured on this slide, and people have a chance to look at it later. But you look at the service areas where, you look at Bendigo's ability, and Adelaide's ability, you can quickly see what a competitive advantage that will actually have, when we start bringing that level of focus around the service. And I'm not talking about customers just at the retail front now, we have customers, whether they're using partners, whether they're coming into community banks, or whether they're in â€¦ coming in via our company branches. The distribution network drives substantially, but we will have added that layer of multichannel ability across our organisations, tiny in our business, I think about 8% in Bendigo's business comes from third party arrangements. This actually gives us a really meaningful way to service, and commit to that, servicing that particular segment of the market.

It will enhance our product, and will give us great encouragement to actually further enhance it. Not only does it give a full retail and wholesale product offering, as I said, it gives us a great chance to think about what other things could we do that add value for customers, at the other end of our distribution channels. The administration and back office, these are the areas where we think the synergies in this particular merger will come, but we're both growing businesses, so there is a great prospect that we will be actually able to retain, you know, good skill through this process, as we go forward as a joint business. And as I said earlier, the culture, I think, is important. If anyone has done mergers before, you will know, when someone uses the merger word, there's a sense of fear that goes around the orgnaisation. We're about to set that fear out of the system, by actually being very clear what we intend to do, very organised, and very open, the way in which we are dealing with all of the internal stakeholders, through this merger process.

In terms of the enhanced proposition for stakeholders, everywhere I look in this case, there's very few areas where you look, where you can't see that there's some advantages, for the customers and the communities, and not only will we preserve and continue to invest in community banking, and the â€¦ and the various rolling out of our distribution network, we can clearly invest in the expansion and development, further development enhancement of the partner network. And, as I said, I do view our business as also actually having partners, but they tend to be more in a retail distribution Jamie, rather than in a â€¦ you know, independent in a separate distribution business. The shareholders, clearly, we obviously are focused around the value that it will create for shareholders, both in the shorter term and the longer term, but those businesses have been generating good value. We really do want to stress that we are focused on maintaining the value that we're creating moving forward, and you heard Jamie earlier, speak about the guidance, we've already issued guidance for '08, and that was a 12% cash EBS. So we're pretty much aligned in those sorts of â€¦ those sorts of areas, moving forward. So we think we'll continue the track record of both organisations, creating sustainable shareholder value and growth in that value.

And for the staff, as I said, the most important thing for us, is we will be doing the functions, and undertaking the functions where the skill is, both of the major head office functions between the two centres will still continue to be peformed, there will be slight changes, but they will be just that. We're about making sure that the wholesale business and the retail business are not actually interrupted by this process, and in fact, at the front business, in the distribution business, there are no changes, just further enhancements as we expand it.

Just move onto the financials. This just gives you a picture of the merged group, you know, the market â€¦ you know, before the synergies, the merge group looks â€¦ it really does change the nature and capability of this business. It brings in substantial market cap, it lifts our shareholder base to 70,000, lifts the customer base to 1.3 million, branches to 382 branches, and that's still growing by the day, and I expect that as those branches mature, they will make that contribution into that retail sector of our business. The cash impact, you can see the combined cash impact of the two just reported results, the synergies, we've set synergies at 60 to $65 million cost synergies. We have not tried to detail, although we do think there are revenue synergies, we have not tried to detail those, they will be in the making of the new management team if this merger's approved. Loans under management, you know, they're substantial. Funds under management, we start right from the start, just bring the two wealth businesses together. We both are developing wealth businesses. The fact that we can bring them together, and actually think about it's a great platform for us to launch the next phase of our wealth management business.

And in terms of credit rating, you know, my view, the merged group does have a real potential for upgrade, particularly as we start to progress, and it becomes clearer just how these synergies will work, and how the organisation will still be able to maintain good, solid growth and earnings.

The next few I'll just go through, just gives you an idea of the loans and the funding mix, it really, you know, that's substantial, look at the funding mix, you know, they're quite substantial numbers in the sort of â€¦ the retail, the wholesale end, and the securitisation specialty, that clearly Adelaide has, you know, really matured in, as a business, I think it's a fantastic attribute, and probably has â€¦ Jamie has a wider application, I have to say, across some of our partners and other organisations, it might well be â€¦ that might well see that as a great attribute. So it's really quite an enlarged balance sheet. Diversified you know, business mix, you can start to see there, when you bring the organisations together to retail and community banking, the wealth management, which is in fact combining the two efforts to date, or the two businesses today, the business partners and the wholesale mortgages, you can see a real diversity of business, and therefore, diversity of revenues. And each with their own discreet and committed customer base. Great opportunity for us to spend time with that customer base over time to add further value.

The next one is really the capital, there's more work to be done here, but really, you can see that both businesses, the capital position they have today, and we're working through those, we still need to work through, you know, the general preference shares, and the step up preference shares, as to just how that will actually pan out in the merged group, but we're confident about the â€¦ you know, the capital, you know, the future capital management of the business, and it'll be well-capitalised business moving forward. This is really just a diaGrant that just gives you an idea of how we're going to focus the major, just the two major elements, there's lots more work to be done at head office, within the corporate services, within shared services, and the way in which we'll do that. But really, we're looking at the customer acquisition or the retail banking elements, retail banking, business banking, planning, all of those issues will be added to only, really by joining the two retail businesses. The partnering businesses will be brought into being, some of the wealth management will be through the retail business, but you can see the partnering business, which is effectively wealth management business partners and wholesale mortgages. So the structure around that is our â€¦ Jamie will â€¦ Jamie will be heading up that â€¦ the partnering and the wholesale business, and Mike Hirst is here today, who's done a ton of work with his team on this merger, will be heading â€¦ heading up a â€¦ the customer acquisition, the direct customer acquisition through the retail banking and all its attributories and business support arms.

With more work to be done, as I said, in the area of corporate services and shared services, there's a lot more work, but we're confident that we've done enough work to clearly show that there are some significant advantages, bringing the two organisations together in those areas. Now, in terms of retail banking, I just â€¦ some of this has been covered as we've moved through, but, as I said, Mike Hirst is â€¦ is the chief operating officer of Bendigo, he will take on the role to continue to run and maintain the momentum in the business. You know, I thank him for the commitment on this merger process, but I know that he's â€¦ he never takes his eye off this business. It's 357 branches, and if we open the Adelaide branches, and we put the financial planning, which we are really â€¦ our customers are aching for us to â€¦ to grow the financial planning capability across our network, and that $1.3 million customers, there is a great opportunity there, and we must not â€¦ we must not let this, in any way, be slowed by the merger efforts. The continued growth of that branch network, as I said, you're going to see a continued growth going forward. The product sweep will continue to reflect the customer expectations from that retail â€¦ retail organisation. We think bringing the merger together will potentially provide some new products for that. The enhanced funding flexibility, which will be, I think, a real plus for the business, and basically from my point of view, the retail banking, by leveraging the payment system in the merger, there are going to be ways we can use the investment â€¦ substantial investment Bendigo's made in payments systems.

And I'll just make a point, that we see payment systems as another distribution channel of servicing customers, it's a channel that's growing at a very fast rate, it produces a revenue line that is also growing at equivalent to the growth rate, it's a very important part of actually being able to distribute and service your customer base. So we think that, Jamie, is something that will actually be â€¦ be able to be leveraged, you know, for the â€¦ for the whole of the organisation, if you know, we get this merger completed. Now, I'd like to just hand over to Jamie, just work through you know, the various segments, or the elements of the â€¦ of the wholesale business that we're envisaging.

Jamie McPhee: Thank you for that Rob, and I can, as Rob said, just work through the â€¦ the other three â€¦ three businesses. I mean the wealth management business, that's the business that has grown very strongly for Adelaide Bank over the last 12 months. Certainly the margin lending business where the portfolio dished up in excess of $5 billion at the end of the year, around 40% growth over the year, so there's a lot of momentum in that business, in the Adelaide managed funds business, we launched two new products during the year the asset [unclear] trust, which is listed on the stock exchange, and the global protected opportunities [unclear] fund, we really â€¦ we believe that there's momentum there, but what this merger brings to the table, is even enhancing that momentum, and that's the point that Rob keeps making.

In Bendigo with the Sandhurst Trustees Business, they do have some equity portfolio investments. We bring the whole business together, it's close to $7 billion of funds under management, and really what we're now starting to do, is get some meaningful sides, and I think with the continued growth in the wealth space, having a larger entity is going to provide us, as a combined organisation, with a better opportunity to play aggressively in that area, and actually grow the business further from here.

So also, the one other synergy, and as Rob said, I mean revenue synergies haven't been built into the numbers, but there is no doubt that they're there, and one of the big opportunities here, is you've now got a 1.3, 1.4 million customers, which you can start to look at distributing product through, and Adelaide Bank customers are exactly the same as Bendigo Bank customers, which they're actually saying, if you provide us appropriate products, we would like to buy from you, and I think this provides an awesome opportunity going forward. If we actually go to the business partner area of the business, and to some degree, we've always split up our business partner's business to two areas, the portfolio funding business, and specialised lending. Then when we talk about the portfolio funding business, we do see that very much as a solution based business, where we're adding partners on, and if we can get them to grow their business, then it means that we get the leverage by growing our business.

So which means it's not a â€¦ it's not a price based business, but a solution based proposition, and we've always felt that we've had quite a niche business here. The interesting thing that I found, with talking to Rob over the last of three or four months, that he started to look at this business from slightly different aspects, and started to look at much greater potential in a merged entity, in maybe ways that we hadn't thought about this. So look, I think this â€¦ the business for us, is growing very strongly as we speak, but I actually do believe, under a merged entity, we can actually grow this business even more quickly than we're already doing, and something that comes into business partners, is the joint venture, with ERB. It says there on the slide that there's $5.8 billion of loans under management, that actually excludes $3 billion of loans under management with ERB as well. So also what we're talking about here, is a significant business going forward.

And just lastly, on the wholesale mortgage business, as Rob said, this is not a space that Bendigo Bank's really played in very aggressively. I suppose you could say they've kept their toe in the water with the NMMC brand and business that they have out there, but really for us, I think there is great opportunity in this business. We have done, as I mentioned right up front with our results announcement, a significant strategic review on this business. The fact is that this is an important business for us going forward, working with Bendigo, we believe that we can further enhance the business. We believe we do have good securitisation capability, but you start to bring in the mortgage trust that Bendigo have, the MMMC operation, again, further opportunities to grow this business more significantly moving forward.

And we'd like to think that we can treat â€¦ keep the track record of product innovation with low doc, equity, our EFM, where we've mortgaged, where we've partnered with Rismark, Bendigo have an equity release mortgage, the Smart Suite product, which we launched during the year. We're looking at expanding that product range to the brokers. So the message really, I'd like to leave the audience with, is that we believe this business has significant growth potential going forward. I can just â€¦ well I'd just like to quickly now go through synergies, and it's something that Rob's talked a lot about, is about really â€¦ there are â€¦ there's no doubt there's cost synergies in this merger, really there's a lot of revenue synergies, and ones that we haven't focused on. If I could just focus a little bit on the cost synergies, there's a couple of areas in the organisation where there's clearly overlap, and that is in shared services, and the support services of the â€¦ the businesses, because in effect, the front end businesses, we've been pursuing different strategies, so the overlap there is considerably less than people that have been operating similar strategies, and I think Rob's made that point very well.

But just on â€¦ something that I think we've got to be really mindful of, as we drive these synergies out, which we're going to do with passion, is that what bringing these organisations together is actually increases our talent pool, and I think in the financial services sector at the moment, one of your critical success factors is having that talent pool available to execute your strategy. And I tend to focus on inputs rather than outputs, and I've always said that the three critical inputs, I believe, for the organisation, is talent management, lending and partnering, and I think what this does, is really work the â€¦ to improving that talent pool, so I actually see it as a huge upside. There's IT savings, Rob's talked about that, we're both on the RFS system, so that's a huge benefit for the merger, there's also consolidation of corporate costs, things like â€¦ I can't really say about the board, I might get myself into trouble if I comment on that. But listing costs, regulatory fees, and those sorts of things. There is an expectation that 80% of these costs will be realised by the second year of full operation, and then there's the revenue synergies, which haven't been built into that, and that's something that I, with Rob, would really like to focus on, going forward.

So just before handing back to Robert, I'd just like to go through, and I suppose, sum up a lot of what Rob's said from my perspective, about the high level of confidence that I have in a successful integration. And I think the strongest of all the issues, is that I actually genuinely believe this cultural alignment, and I think if you get that cultural alignment, you're a â€¦ you're a red hot chance. Bendigo and Adelaide Bank really care about their staff, they care about the customers, and we care about the partners, and that's the basis for this. Now we can really harness that energy, the shareholders will do very, very well. It's a commitment to maintain both headquarters, the headquarters here in Adelaide, the headquarters in Bendigo, I think that's fantastic, and again, that's also â€¦ will give us a greater opportunity to leverage the talent pool available. Both brands are going to be maintained and grown, we run multiple brands, Bendigo run multiple brands, so running multiple brands, it's not new to either organisation. We've had a look at the business model, we think that the community bank, in partnership with Bendigo Bank has â€¦ is rolling out, is excellent, and certainly from â€¦ from Adelaide Bank's perspective, we don't see any â€¦ well the only change we see in that, is continuing to grow it at the rate that it has been â€¦ been grown, and so it'll be continued investment in that community bank business model. I think also, this provides a great opportunity for us to invest in our branch network, which we've known we've been under-investing in that, but we just haven't had the financial resources to do that, and that actually provides those resources.

So I think for here, for the South Australian customers and community, that's a â€¦ that's a great opportunity. And of course, in the wholesale part of the business, we've got to keep investing in our partnerships. So, when I look through that list, I must admit, I have a very, very high level of confidence about a successful integration, and Rob, if I can just hand over to yourself.

Rob Johanson: Yeah, so to sum up, this is someone's calculation as to what the savings will be worth, but frankly, you wouldn't do it for the savings. You'll only do it if you believe that from this platform, this business will grow and be stronger as a result of the merger. We â€¦ mergers or takeovers in financial services, are a notoriously â€¦ they've not been very successful over time. And part of the reason is, that the â€¦ the stakeholder group, who ends up making the decision, that's the shareholders, do it â€¦ they're induced to do it on the basis that leaves the customers, and the staff behind, and they get lost in the process. Our organisations are structurally different from that.

In Bendigo, our strongest advocates, our best customers are people who are our shareholders, and the same history, and picture of engagement, and of advocacy, you can see in the Adelaide base. That's what we've got to nurture and build on as we bring these two things together. The next slide sets out the timetable, these things take a long time, but we expect that the implementation will be in â€¦ in about mid-November, and we expect that the â€¦ the resolutions or the scheme meeting can be, more or less, coincide, we hope, with the Adelaide AGM.

There's one other thing I should mention, you will see in the releases that it said that Rob Hunt will â€¦ is planning to retire as managing director in â€¦ at the end of the '09 financial year, so in June '09, that'll bring to an end a very long history of engagement, of involvement in Bendigo. His job over the next two years will obviously be to bring this merger together, to make sure that not just the savings are achieved, but the organisations do become one, he needs to, as part of that, ensure that the â€¦ that the innovation that both organisations have shown, really becomes locked in as part of our processes, and that that special connection we have with our customers, the understanding that it's when our customers are successful, that we're successful. And if they're not successful, we won't be, a simple insight to ensure that that is translated into the entire organisation, and across a lot of other partners with whom we would then be doing business.

Bendigo Bank next year, will be 150 years old, and we are committed to ensuring that this organisation continues to grow and thrive for the long haul, we're not really interested in doing these things for next year's earnings for share calculations, we want to keep our eye firmly on that long â€¦ that long-term, building slowly, steadily, the value that comes from our involvement with our customers, and through their prosperity. So thank you for all â€¦ for putting us â€¦ putting up with all that. Now is the opportunity to ask some questions. There are some people here, and there are also a number of people online. Is there anyone here got any questions? No, let's go to the â€¦ to the phone system.

John March: Yeah hi guys, it's John March here, just got a question for Rob Johannson if I could, just looking at this deal, and just comparing it to the BOQ cash dealwhich was rejected, and just looking at the synergies. If we just ignore the revenue synergies, which are very debateable for all their transactions, you look at the cost synergies of about $65 million, which is roughly the same as the synergies that BOQ presented. But in this case, you're actually paying for â€¦ your shareholders are paying for it, where previously, your shareholders were going to receive it. So why is this a better deal for your shareholders, than the cash deal that you received from BOQ?

Robert Johanson: Well of course, by the time we got to consider that proposal, it was, in effect, well, I think the judgement was, that it was just simply unable to proceed. The process had led to our stakeholder groups, and in particular, our shareholder groups, to be unsympathetic to those arguments, and so that the level of enthusiasm that would be required to bring about that transaction, simply couldn't be delivered upon.

As I said, mergers in financial services are notoriously difficult to bring about successfully. There was a draft of a slide in this presentation at one stage, that said that we had a low risk in integration, and I â€¦ I deleted that one. It's not that there aren't â€¦ not that we aren't confident the integration will be achieved, because of all the things that people have gone through, but that's the hard thing, that's â€¦ and it is, as I said earlier, it's because customers and staff, who are the ones who deliver the value, get lost in the process. So that â€¦ it wasn't â€¦ it isn't a matter for us of saying, we'll have this one or that one. The question is, what's able to be done? And that, in the way it was delivered, and the way it was received, was simply not able to be done. Do you want to say anything on it?

Rob Hunt: Well just in terms â€¦ I just â€¦ just reiterate in some ways, Rob, that mergers are hard to â€¦ are hard to effectively implement, but the most important thing is, that when you â€¦ when you're â€¦ when the mergers â€¦ when you're coming together, that you've got a lot of things that are actually substantially resolved, and there's a commitment from a lot of the stakeholders, because one of the things with the previous transaction you talked about, is that stakeholders, you know, took a view, and they are the people who actually help us, and they're the customers, the communities, and the district, that actually continue to support us, and the problem is of focusing â€¦ if you only focus on the synergies, and the immediate benefit, you know, there's a lot â€¦ a lot of value that could disappear within the â€¦ within the organization. But I think it comes back to what Robert said, at the end of the day, it came down to you know, the actual â€¦ the people who were going to be required to support â€¦ they'd already shown a â€¦ that that was unlikely.

John March: Just following on from that, just looking at the key stakeholders, which is obviously the shareholder, the number one priority, if you look at the combined entity, after the merger, the ROE is the combined group force around 11%, even after the synergy's out in 2009. Is that an adequate return for shareholders?

Robert Johanson: Well the return on equity of Bendigo this year, is, I think about 15 â€¦

John March: After the merger, after the (unclear - 49:40).

Robert Johanson: Yeah, well no, it's not an adequate return, I think that the long â€¦ in the long-term, mind you, Bendigo's return on equity has got to that level after some years of gradually building to that level. We could've got there quicker, had we not continued to invest so much in building our distribution capacity and other areas of our business, but we're slowly building it as a result of building the other value parts of our proposition. As I hope we've been able to describe to you, we do believe that bringing these two organisations together, does lift us to the opportunities of doing that, continuing to do that over the long term, so no, that return on equity, that historic one won't be satisfactory going forward.

John March: Thank you.

Ben Koo, Goldman Sachs: Hi, just got a question probably more for Jamie, on just the Adelaide Bank customers through the wholesale mortgages and the like, a previous strength of Adelaide's model has been that the partnership model doesn't have any channel conflict, and so when people are â€¦ you know, your partners are actually selling an Adelaide Bank product, there's the worry that there's also competing Adelaide branches out there, competing to the same customer, outside of South Australia, just wondering whether that was going to be an issue for implementation, and how you plan to tackle that?

Jamie McPhee: Yeah, thanks Ben, because that's obviously an issue that we did actually consider very, very seriously. We actually don't believe there's a lot of overlap in that context, because if you really look at Bendigo's retail strategy, their community model, it's to some degree, servicing a different set of customer-based and customers, which are looking to operate through third parties, and I think it all comes â€¦ always comes back to you know, it is the customer's â€¦ the customer's choice. So as you say, historically, we've talked about say, the word not out there in a distribution sense, competing with our partners, this, in my mind, and we've had some discussion with our â€¦ our partners, broadly speaking about this specific transaction, but we don't see the conflict, nor do they. Our job is to deliver them a value proposition, which is absolutely appropriate to the customers which they are serving. We do that well, we'll continue to grow that business, but it is an issue that we did consider very seriously.

Ben Koo: Okay, and just another question, again related â€¦ in terms of once that comes in, is that â€¦ are you guys looking for â€¦ to get an advance, was there any plans to you know, just [unclear] more sophistication with the merged entity, are there plans to move up into the Basel II treatment?

Jamie McPhee: Did you hear that? I â€¦ Ben, sorry, I'm not sure I heard who the question was for, but I certainly didn't â€¦ it didn't come through very clearly at this end. Could you please restate it?

Ben Koo: Sure, just in relation to Baswell II, and the two merged organisations, whether they'll be going for advanced or anything along those lines?

Jamie McPhee: Ben, Ben, we haven't really â€¦ I mean I think both, we're really approaching a â€¦ sort of a standardised version, but we haven't â€¦ we haven't given any consideration to the merge entity, we're â€¦ we've got a bit of work to do on the merger process first.

Robert Johanson: But I think it's inevitable that our capacity to make that transition has obviously improved, and the problem is, if the standardised model gets characterised as the kind of second-best one, then â€¦ and then, as an organisation, if you're working under that model, you're bound to get, well penalised maybe too heavy, but you won't get the advantages, and the debate sort of moves on, the debate where the regulators won't be about fitting it in within the standardised model, because their expectation's about information, and things will go up. So the capacity of the organisation to deal with hat, under considerable expense of having to equip yourself to do that, will obviously be enhanced as a result of the scale that we'll get out of this transaction.

Ben Koo: There'll be [unclear] plans by the sounds of it?

Rob Hunt: Well Ben, at Bendigo, we're spending quite a bit of money, in the sense of, with AML and the whole raft of other things around the technology, but we're â€¦ we haven't focused at this moment on moving to advanced, nor do I think at the moment, that we or the regulator would be in a position to advance us at the same rate as the majors. But from my point of view, it just â€¦ it will be considered, it hasn't been considered yet, but as well, I think it almost must be considered, as one's â€¦ and if this merger, you know, gets the green light from shareholders.

Ben Koo: Okay, thank you.

Rebecca Bryce: Rebecca Bryce from ABC News. My question is probably for Jamie, I think from some of the documents I've read this morning, that the combined entity would probably have about 4,000 employees, what I'm really interested to know, is how many employees Adelaide Bank currently has, and will they keep their jobs?

Jamie McPhee: Sure, we have about 1,100, EFT or employees, or 1,240 people employed across the group. We have about 130 in Sydney, 50 in Melbourne, and some in â€¦ a dozen in Perth and Brisbane. It has also been mentioned the wholesale mortgage operations are going to be operating out of here, out of Adelaide, so that there'll be absolute job security there. There will be some overlap in corporate services and shared services, and as Rob and I have talked about, right through this, is that that's all about ensuring best of breed, and best location to where those services will ultimately operate out of. There'll be some out of Bendigo, there'll be some out of Melbourne, there'll be some out of â€¦ out of Adelaide.

In relation to your question about what does it mean for job losses? The job losses here are not going to be significant. At the end of the day, the â€¦ the entity, the merged entity, if it goes ahead, will actually create, in my view, improved career opportunities for staff here in South Australia. As the business grows, the combined business grows to a more vibrant and prosperous business, it's going to actually create jobs. In the short term, if you've got two positions where you only need one of, yeah, we are â€¦ we will deal with those â€¦ those issues, but long term, I think it's absolutely in the best interest of the staff.

Rebecca Bryce: So in the short term, what will those job losses be?

Jamie McPhee: Well we haven't worked through exactly the numbers, if you turn over and have a look at it, in the finanicial services sector, you have about a 15% to 20% turnover rate anyway, a combined entity with 4,000 staff, that's about 600 staff a year. So the fact is, it's going to be plenty of opportunities to deal with that issue sensitively and appropriately, but at the end of the day, you can only have one chairman for argument's sake, you just have to you know, deal with that issue, so there will be certain issues that we'll deal with, it's not going to be significant, and to say the number is x at the moment, we can't answer that question, because at the moment, we have to work through those issues, and as I said before, it has to be a best in breed decision.

Rob Hunt: Yeah, I think the other thing, as I'm just reiterating what has already been said, in quantum, because of the vacancies, the turnover rates, and that natural, the growth of both businesses, might not change a lot, but some positions within the organisation, get changed, opportunities to some, and sometimes you do have those occasional areas where there simply â€¦ it would be inappropriate to try and have someone sitting doing something, where they're much more skilled to do some menial task. That's not going to be â€¦ we'll not approach it, we'll be approaching as openly, honestly and with lots of orgnaisational time and discussions with anyone that might be impacted.

Robert Johanson: Any other questions on the telephones?

Richard Wild: Good morning, I've got two questions, the first one's for Dr Lloyd, why do you think this offer is sufficient for Adelaide shareholders? They're receiving $360 million of additional value today, that seems a small share of the $650 million of cost synergies that you've identified, $650 million of value of cost synergies you've identified, not to mention the additional revenue synergies. And my second question is for Robert Johansen, follows on from John, what an excellent question. Why do you think Robert, that Adelaide Bank shareholders should accept the 23% premium, when you reject it on behalf of your own shareholders, the premium from Bank of Queensland, which reached 45%?

Adele Lloyd: I'm sorry, didn't get the gyst of that question, could you condense it a little bit please?

Richard Wild: Well essentially your shareholders, Dr Lloyd, are receiving an additional $360,000,000 of value.

Adele Lloyd: Right.

Richard Wild: Over and above yesterday's closing share price. The value of the synergies that you've identified is $650 million, and you've also set to feel the additional revenue synergies. I'm wondering whether you think that is sufficient for Adelaide Bank shareholders to only receive that portion of the total synergy value?

Adele Lloyd: Yes, we did consider the value for Adelaide Bank shareholders from many perspectives, and of course, we had advisers looking at this in a lot of detail over a considerable number of days and weeks indeed, so the â€¦ if I could just simply say that we believe as a board, that the value for Adelaide Bank shareholders is indeed, excellent, and in the context of the future of Adelaide Bank, and in particular, the shareholders, the strengths that this merger will bring, are just undeniable for â€¦ in the total context of the financial analysis.

Robert Johanson: And why do I think that Adelaide shareholders should join this â€¦ join with the Bendigo shareholders in establishing what will then be a substantial spread, growing, thriving business, with, I think, opportunities to serve the customers better, build new businesses, do I think they should? I certainly do. Do I think that, as you put it, how can I think that they might, having â€¦ having seen Bendigo shareholders reject a different proposition? It wasn't the â€¦ we think that what we're trying â€¦ we're creating here, is something that will survive in the longhaul, and will, over time, produce excellent value for shareholders, that's the proposition we're putting to them, and we hope they join with us.

Richard Wild: Thank you.

Craig Williams, Citi: Thank you, a question for the Bendigo management board, look, in rejecting the Bank of Queensland, and the Bendigo Board's cited significant risks, including integrating organisations with different business models and philosophies, it would appear that a combined Bendigo/Adelaide Bank has more inherent differences, although I note your earlier comment that someone was confident enough to put in a low-risk transaction into the original slide pack. I'm just wondering now what â€¦ what you consider to be the sort of key risks of â€¦ of this transaction, and how you're going to manage those?

Robert Johanson: Well, from the board's point of view, the risks are that â€¦ that customers will be alienated by the exercise, that staff will become disenchanted or distracted, they're the two substantial reasons as to why financial services mergers don't work, and we are trying in this exercise, to ensure that the â€¦ as I described it earlier, the high levels of advocacy, we get from our customers, can be maintained and indeed, strengthened as a result of our offering to them, being able to be better through the exercise. We are â€¦ we take this as â€¦ we approach this very seriously indeed and that's why, I think we've got a good chance of â€¦ of being able to deliver on it. Both organisations do share a common history, business decisions were made about the business models to be developed as a result of the times and the exigencies that each of us faced at the time, and we think that bringing them together just enhances the offering.

James Ellis: Look, just got two questions, firstly in terms of integration risk, obviously this is effectively an out of market merger of equals, of two companies that, in the past had a great focus on very distinctive business models. How do you sort of address the cultural issues of bringing them together, and look, I acknowledge all your comments earlier, that there's two complimentary business models, but they're coning from cultural backgrounds which are very different. And then the â€¦ the other question is for â€¦ for Robert Johanson, and â€¦ and not wanting to harp about too much on the Bank of Queensland merger proposal, but to what extent is this merger proposal attractive to you, you know, in as much as you know, you are the dominant merge partner in this merger proposal, whereas in the previous one you weren't?

Jamie McPhee: James, can I just answer the cultural one? Because I'd sort of like to say there that you talk about â€¦ Robert talks about two orgnaisations coming from the same â€¦ same history, and you're talking about two different business models creating different culture. I don't agree with that statement whatsoever, I think that you can have the same culture and pursue â€¦ pursue different business models, exactly as Rob said right upfront, that both organisations, around a similar time, just determined which strategic path they were going to go down. We went down the wholesale strategic path, we basically made that decision in 1994 when we started using third party distribution, Bendigo took over a different path, but I for one moment can't understand how that creates this â€¦ this cultural difference that you talk about. Look, every interaction I've had with the people at Bendigo Bank â€¦ I know Adelaide Bank very well, I've been there for 18, coming up 19 years, I know the Adelaide Bank culture very well. Every interaction I've had with the Bendigo people, the cultures are aligned, and I have no hesitation in saying that, and I'm very confident about that.

Robert Hunt: And â€¦ and can I just say, we're both serving customers, we're servicing, and Jamie and Adelaide Bank and the predecessors have really focused on serving customers and demand, that it clearly is coming, but through the third party channel, because that was the particular area that they felt they could excel in. We felt w could excel in the retail, but when you come down to the basic culture, I think they are very much focused around delivering value to customers, delivering value to partners, and therefore, securing ongoing commitment and revenues for the business.

Robert Johnson: And your question about â€¦ well your final question, in my experience, the excitement about where people come from lasts about five minutes, that if the merger is going to work, then we will quickly forget which base we came from. In my experience, and what's now Bendigo Bank is a result of, I think over 20 mergers and other such deals that have been done over the past I don't know, 25 years, what's now Adelaide Bank is itself, a result of the coming together of two building societies to form the entity that became Adelaide Bank. We â€¦ most recent substantial experience was when we merged with the First Australian Building society in Queensland, and that â€¦ you come together, and then you forge new identity, and then you work together. And that's the way that these things happen. And I know it's â€¦ it may be disappointing to people to think that all our boards, and in particular, chief executives aren't entirely ego-driven, and â€¦ but it's just not the way it works, and â€¦ and â€¦ and I think that the â€¦ the sort of discussions that we've had between the groups of people, between Adelaide and Bendigo give me great confidence, that together we'll be able to commit ourselves to this new organisation.

Rob Hunt: And just to say, you know, to bring together a merger and to â€¦ there is an element of judgment, whether this â€¦ whether it is â€¦ the companies are â€¦ you can merge the companies, and you can successfully integrate it, and you can maintain the momentum of the two organisations, and not destroy some of the value that might have been created by the entity itself, the individual and separate entity. So there is a judgment around you know, whether you can merge, and you do have to take culture, and all of those, and prospects and synergies, and all those things into view, to both create short-term and longer-term shareholder value, and Robert has said, we're very much focusing and building with Adelaide Bank, a bigger, bolder, better, more robust business moving forward.

James Ellis: And Robert Johanson, now how attractive is being the dominant merger partner in this transaction?

Robert Johanson: Well, that's what I was trying to â€¦ trying to answer, I don't see us as the dominant partner. And if we approached it in that way, and if that's the way people â€¦ if that's the way people reflect upon it six months after it's happened, it will have been a failure.

James Ellis: Thank you.

Antony Hew: Hi Rob, hi Jamie, my question's around integration, again, I was just wondering, you previously said that the retail â€¦ that the two different brands will be retained, but how involved will integration be in terms of the product integation? Will you have common sets across the whole organisation, or will you still retain different product origination units?

Jamie McPhee: Did you hear that?

Rob Hunt: Antony, I think â€¦ I think you were talking about whether there were different â€¦ whether there would be some combining of the product sets, I mean we â€¦ we built up in the retail and we've built up products that are likely to satisfy customers that have come for a particular style of service and particular style of support. Jamie and Adelaide Bank have built up a particular product that actually is â€¦ is helpful for the partner to get on and service the customers that choose them as their distribution point, and I don't think you'd mix them up, they â€¦ they are trying to be constructed to be valuable to the customers through the respective channels, and from my point of view, you know, they serve different purposes because the customer expects them to serve different purposes. It might actually be the same asset that they're purchasing, but they are actually servicing different purposes about the usability, the way the customer intends to use the product and service and support the product through the channel that they purchased it.

Jamie McPhee: Yeah, and I agree with that Rob, I mean that's very much if that was the question, I mean it's â€¦ it's very much about a stronger organisation, servicing a broader range of customers. Our job here is quite simple, the customer creates value for your organisation, the organisation, it doesn't happen any other way round, and what our job is to do going forward, so across the four business units, which we've outlined, is to make sure that each of those business units provides a strong value proposition for that customer base. Now if we can't do that, why would the customer want to do business with us? The great opportunity we've got, is we've got customers and partners who want to do business with us, and â€¦ and we've got an engaged workforce, but I don't know the exact statistics at Bendigo Bank, but 93% of Adelaide Bank staff would recommend it's a good place to work. So if you've got that as a platform, the opportunities are enormous. But make no mistake, we have to provide a value proposition that the customer is prepared to pay for, outside that, you can't make it any more â€¦ you can't complicate it any more than that, I mean it's really that simple.

Antony Hew: Okay, thanks.

Brian Johnson: Brian Johnson, JC Morgan, well done Jamie. Just â€¦ I had a few questions, but first of all, I'd just like to correct some things, that when I look through the slides, I think are wrong. The first one is on slide 22, where you attribute the value of the synergies, 15 times get 630, my understanding of what you've said today, is those synergies won't be realised fully until the year three, at which time, the PE, the blended PE would probably be close to 11, which implies it's actually 400 as opposed to 630, and the second one is, you actually said at one point, that Bendigo shareholders had the opportunity to vote on the Bank of Queensland offer, which is actually, I think, incorrect. They said the Bendigo shareholders had the opportunity to express their opinion, but at no time did the institutional shareholders have the chance to actually vote theirs. But that being said, if I could ask three questions if I may.

The first one is, in the slides, you actually say that this is cash EPS accredited to both groups from year one, but you say that's excluding the cost of basically doing it. We have a look at the slide of the capital position.
The capital positions look alright, but any cost base that you absorb comes straight out of the capital position. The two slides look mutually exclusive, can we get some clarity on the size of the expected costs?

The second question that I actually had, not all that long ago, in fact on the 23rd of July, there was a stock exchange announcement detailing changes to Jamie's contract. I am uncertain as to what the implications of today's arrangement if it would get up, can we get some clarification as to what actually happens with those new contracts? Because I believe they're going to be voted at the AGM, but you make the comment that the board will use reasonable endeavours to develop suitable alternate arrangements in calcification with the group managing director, if they do not get up the AGM. Can we get some clarification on that? Because I'm sure people have thought of that.

The third question is just on the double digit EPS growth outlooks that we're getting for Adelaide Bank in isolation. Jamie, I'd be interested on the fall out from the sub prime, we've seen sub prime RMBS spreads already blow out three to five basis points thus far. Adelaide Bank has a very low ROA, so potentially, that could have quite a big impact on the actual earning stream.

And the final one that I was interested in is, during the Bank of Queensland's Bendigo proposal, we were told that Grant Samuel were actually the adviser to Bendigo. Can we have some clarification as to who was the actual adviser that Bendigo used, and how the chairman of Bendigo, if it was in fact Grant Samuel again, could we get an explanation of how you balanced the role of being the chairman, and then exclude yourself from the meetings with evaluation of that role, could that be discussed?

Rob Johanson: Okay, thank you for your judgment on the future PE multiple that will be applied to the savings.

Brian Johnson: Excuse me, that's not my judgment, you guys said in the slide that the PE 15x is the blended PE. The synergies, as I said, as you are saying, are in three years' time, the blended PE at the moment may well be 15, but it's not 15 in three years' time, so whoever has prepared that slide, either you're telling us the PE is in fact 15 in three years' time, or it's actually materially incorrect.

Rob Johnason: Well, as I say, thank you for your judgment of that. This is of course, only illustrative, and I guess we'll know in a while what the â€¦ what the view of the market is as to its assessment as to the value of the savings, and of the opportunities to be created by this. You are quite correct, there was no formal vote of shareholders of any kind in Bendigo, in relation to the Bank of Queensland proposal, we didn't get to that, because the requirement was, that the board enthusiastically supported, and that was before it would be able to be proceeded with, and as we've discussed, the judgment of the board, after â€¦ after extensive consultation with all sorts of stakeholders and extensive discussions with lots of shareholders, including institutional shareholders, we reached our decision on that matter. The next point you made was about the acrretive earnings per share calculations, whether the costs were included have been taken account of that, I think the answer is, we haven't made a specific provision at this stage for the costs, and I expect they'll be capitalised in some way as part of the â€¦ of the initial entries into the transaction. But I don't think that they'll be in the scheme of things, that â€¦ that extensive, they will alter the impact of it.

Jamie McPhee: As to the next point, which was, [unclear] I think wasn't it?

Rob Johanson: Yeah, Jamie, you can answer this one if you like.

Jamie McPhee: Well my contract, Brian, are you telling me to take a further pay cut?

Brian Johnson: No, I'm not suggesting you take a pay cut, but Jamie, it's just that the timing of it, I think is absolutely unfortunate, I mean 23rd of July wasn't all that long ago, and I was only â€¦ it's funny, the stock exchange announcement that we've seen, doesn't actually cover this scenario, 'cause what it talks about is resignation following a material change and status of authority, but from what you're saying today, it sounds to me as though you're actually staying on board. I mean that's â€¦ that's there.

Jamie McPhee: I can â€¦ I can answer that â€¦ that clause, but let me â€¦ let me go back to â€¦ we got criticised as an organisation for our â€¦ for our remuneration plans that were put in place, our STI and LTI, and there's no doubt that I think there was some flaws in that construct. I actually made a commitment to the market that said we would actually look at putting in a â€¦ a market appropriate best in breed remuneration structure, that I was only prepared to be part of the same structure as my team. We have worked extensively through that process, we've used an enormous amount of expertise, we used â€¦ we used [unclear], there was â€¦ the whole sort of corporate government's remunderation committee of the Adelaide Bank, the chairman there, Roger put an enormous amount of effort in, and that process took about three, four months to go through. The plan is a terrifically robust plan, it was approved by the board about three months ago, in terms of just â€¦ then we needed to work through the TSR and â€¦ and a few things like that, so at the end of the day, I think that sort of whole remuneration plan is highly defensible, yeah, you're right. I mean the timing was a bit unfortunate, but again, it was just about making sure that we had the appropriate plan put in place.

In relation to â€¦ to â€¦ there is a clause in there that turns around and says that if there's a change in control, without my consent, I can tell you Brian, this â€¦ this has my total consent, my total support, I am totally enthusiastic about it. I intend to work in whatever capacity in this merged entity, if it gets voted up to create the real value I believe is here for â€¦ for our shareholders, so that's â€¦ that's my absolute commitment. The â€¦ the other question was on â€¦

Brian Johnson: Jamie, sorry, I don't doubt that for a minute, but what I'm interested in, is does this trigger the termination payment?

Jamie McPhee: No.

Brian Johnson: No, good.

Jamie McPhee: Okay? So â€¦

Brian Johnson: Jamie, I think you probably deserve it, I think you do a good job.

Jamie McPhee: Yeah, the â€¦ the next one is the whole sub-prime issue, I mean we don't have any exposure obviously to US sub-prime, and I know you know that, and I know you know that the mortgage market here is very different, but then you're saying, well where's the â€¦ where's the margins going to settle on residential mortgaged backed securities, compared with where they were historically? We have warehouse in place, which means that we don't have to secure ties between now and Christmas, and I can tell you, if the mortgage market, the biggest securities market in the globe is still in this sort of turmoil by Christmas, this is just more than an â€¦ you know, an Adelaide Bank issue. My understanding at the moment, that spreads have blown out by a couple of basis points, your point is we're running on fine ROA's, so a couple of basis points actually deals with ROA. I accept that as a comment, I can tell you this, that our ROA at the moment has increased by 50% compared with the start of the calendar year, and that was the commitment, you know, when you and I â€¦ so we talked about the â€¦ the half year results, we said we're not going to price for market share, we're going to price for economic return, and a lot of the things that we put in place has increased that ROA. Brian, that business will be more profitable in 12 months' time than it is today, and I don't think that the issues that are happening in that residential mortgage backed security market is going to have a material impact, unless you give me an Armageddon scenario, and â€¦ and then yeah, but it's going to impact a whole lot of businesses.

Robert Johanson: The final matter raised related to me, which was the role of me as chairman of Bendigo, and as a director of Grant Samuel, Grant Samuel has been an adviser to Bendigo Bank for 15 years, or 14 years, and readers of the annual report each year, will see the amounts paid set out in some detail in those reports. Grant Samuel with Goldman Sax have been advisors to Bendigo in relation to this transaction. The â€¦ I think Brian's question is whether I â€¦ how have I managed the conflict that is possible within those arrangements?

I have been involved in all the matters, I've not taken the view, and indeed, the strong legal advice we have is that I cannot absent my â€¦ I cannot do my duty by merely absenting myself, and I wouldn't choose to do so. But the â€¦ but the role is managed by others, it's been put to our â€¦ to the regulator, and discussed with them, and made apparent to them, and will be, I'm sure, discussed again in the annual report this year.

Brian Johnson: So to come back to my question, did Goldman's or Grant Samuel advise on this transaction?

Robert Johanson: It was a joint advisory role.

Brian Johnson: Joint, okay.

Robert Johanson: With joint advisors.

Brian Johanson: And I agree that you can't absent you chairman's responsibility, but is that the answer that â€¦ that you basically could not absent yourself from the chairman's responsibility?

Robert Johanson: Yeah.

Brian Johnson: Thank you.

Andrew Hill: Thanks, I had a question, I guess following on from Brian's question, regarding securitisation spreads and wholesale funding spreads, Rob, just from your perspective, you have increased your exposure, just looking at the summary of the combined funding mix on page 12, just wondering how you would see that funding mix evolving over time?

Rob Hunt: Well there's not a â€¦ there's not a huge change. There is a change in the â€¦ to some degree, in terms of the retail deposits, we're talking about retail wholesale?

Andrew Hill: Well I guess the split between retail and also the wholesale and securitisation contribution.

Rob Hunt: Yeah, well securitisation is a pretty small item, but the wholesale funding, it wasn't there, during the course of the year, we did actually â€¦ you know, we â€¦ we felt that things were getting a little â€¦ a little hot in some areas, some of the pricing on some of the retail deposits, we decided against going you know, just I guess aggressively competing, where we felt the price had â€¦ it wasn't â€¦ wasn't appropriate, and yeah, we saw some slight impact on some of the â€¦ in some of our term deposit areas, but really, it was â€¦ it was a conscious choice. I can tell you in the â€¦ in the first month and a bit, and this year, we've actually had deposits roll in, retail deposits roll in very, very sharply, we think mostly retail deposits were impacted last year primarily around the â€¦ you know, the â€¦ the money that moved into super, into the super structure, because we have very retail customers, there were lots of customers that would've been doing some structuring around superannuation. So I don't think there's any change beyond that, it was the wholesale, just simply being the balancing under the funding required over the year.

Andrew Hill: Would you see that the higher cost in the wholesale funding market, do you think that will result in â€¦ in greater competition of retail deposits?

Robert Johanson: Well the whole system is short of retail desposits, and the rules about superannuation, the attractiveness of superannuation means that bank deposits, as a â€¦ as a savings device, are â€¦ they're a threatened species, and as an organisation, as a whole industry, that's the reason why people are â€¦ to provide financial services, you can't think just about a simple asset mix of â€¦ asset and liability mix of you know, deposits and home loans or something or other, you've got to be â€¦ if you â€¦ if you're dealing with â€¦ if you're able â€¦ to be able to provide an offering to customers, you've got to have a richer â€¦ a richer product array to them. So that big shift of savings out of banks into superannuation and other investments, well that's been going on for you know, 30 or 40 years, and it's not going to stop this year.

Rob Hunt: Okay, and I think it's really why we're focused though, in terms of the deep â€¦ having a really true retail and a really deep relationship, you would've seen that our core deposits really grew solidly this year. Well a lot of that is â€¦ there's â€¦ there's sort of cash and turnover-type business through our business accounts as well as savings, as â€¦ and to a large degree, that's the â€¦ that's in â€¦ one of the really big contributors to margin performance is the mix of â€¦ of retail deposits that we're picking up now, knowing that some of savings, or some longer-term savings, it's clearly going into the longer-term â€¦ into other capital pools. And I mean there's a great sense that you know, superannuation, the superannuation account will become almost like a bank account for many retirees, they'll need a system, a banking system and other things, perhaps in front of that to be able to gain effective access to it, but that's how we view it, we see it as just another asset pool that you know, needs to be able to be gained access to and serviced by you know, banks and banking systems.

Robert Johanson: When â€¦ when people are asked who's their bank? They don't say it's where I've got my home loan often, mostly it's where they do their transactional business, so that's â€¦ that's the â€¦ that's the part of the relationship, the banking relationship, it's a â€¦ it has been a big change.

Jamie McPhee: Yeah, it's a big change.

Robert Johanson: So when you think about how you then nurture the customer relationship to have the opportunity of doing more business with them, it is in developing things like payment systems, they're going to be the keys to the relationship, which will hopefully lead to the opportunities â€¦ the product opportunities.

Rob Hunt: And can I just â€¦I know I'm repeating myself, but we talked about the desensitising at the front end of the business, of the retail business, to which balance sheet or which asset pool, you know, the funds or the borrowings are serviced from, and that's really very important to us. Do the right thing by the customer, get the right product in the hands, let us worry about you know, whether it's just into something that â€¦ on our balance sheet, or someone else's balance sheet, in effect we're just focusing on servicing the customer requirements.

Robert Johanson: And the â€¦ and there are customers who choose to do that through brokers.

Rob Hunt: Yep.

Robert Johanson: And that's â€¦ we've got to â€¦ we've got to have the same approach to service â€¦

Rob Hunt: Exactly.

Robert Johanson: To then, through that channel, as we do to people who walk into our â€¦ into our branch.

Andrew Hill: Thanks.

Steven Clark: Steven Clark from Charter Pacific. Just a question in relation to your three groups of stakeholders, I think the shareholder base has been covered quite a bit to date. Can I just ask a question in relation to your other two stakeholder groups? Being staff and customers, given you've knocked back the Bank of Queensland offer, which only expected to have cost savings in the order of 20% of the acquired group, you're looking for almost 40% cost savings of the acquired group here. How can you be looking after your staff and customers on the basis that you're expecting twice the level of cost savings this time round in this transaction than was expected in the Bank of Queensland transaction?

Rob Hunt: Well the â€¦

Steven Clark: Presumably that means more aggressive cut-backs, and more aggressive downsizing than they were expecting in their transaction.

Rob Hunt: Well I'm not sure though that's â€¦ that's right, those numbers are right, but â€¦ but the cost synergies that we've referred â€¦

Steven Clark: Based on the fact of about $65,000,000 over your cost base versus $65,000,000 over Adelaide Bank's cost base, that's where the numbers come from.

Rob Hunt: Yeah, but â€¦ but the cost savings are over the joint organisation, over the merged entity, not over â€¦ over one organisation, and â€¦ and â€¦ and the cost savings come in many forms, and the effectiveness of having the same IT banking platform, you know, the funding, you know the funding elements, just the â€¦ just the straight functional overlap, but I think the key issue with the staff is one component of that, but as I â€¦ as we mentioned earlier, and Jamie mentioned, we've both got growing businesses, we've both got turnover, we've both got demand for â€¦ and want to have skill, we'll be doing everything to retain that skill, so that we can continue to grow our business going forward. So we'll be handling that carefully, but it is wrong to say that all of the cost savings are in fact, just staff, they're not.

Jamie McPhee: Now Steven, we've been through the cost synergies in a lot of detail, at the end of the day, it's about 11% of the combined cost â€¦ of the cost base of the combined group. I think if you look historically at that, you'd say that's â€¦ that's the fairly market standard. Look, I think that again, I think it's Robert's key point here, about dealing with things with the same culture, that we do have our same culture about our customers and our staff, it will be handled very sensibly and appropriately, but when you actually go through the numbers, they're there, and they're there, and we will â€¦ we will work â€¦ we will work through them, and I think we can do it without disaffecting our staff, and without disaffecting our customers. I mean it's 11% of the combined group.

Robert Johanson: I think part of the reason for your calculation, looking at bigger percentage, may well be the different cost bases of the â€¦ of the â€¦ of in fact, the three businesses you're trying to include in your base.

Jamie McPhee: Well let's be honest, let's be honest, Adelaide Bank's business model actually outsources distribution cost, and so like if you actually build that â€¦ that sort of back in, so I mean that's â€¦ so that's â€¦ that's the big difference.

Robert Johanson: And the savings in the two transactions, or proprosed transactions that you have described, and in a number of other possibilities, have all been largely the same, the savings are in technology, and they are in head office, compliance, capital management type things, and it's â€¦ it's there that you get duplications. They're not in distribution, they won't be in this case, the distribution overlap is negligible.

Rob Hunt: Yep, and in fact we've made commitments around you know, not only the branch outlets and the customer service, we've made commitments that we're still seeing expansion possibilities in the â€¦ in the distribution network, and the servicing the customer base, you know, it would take a hell of a lot to get me to not focus on â€¦ on the outcomes of the customers, 'cause they generate the revenues that generate the value, that ultimately come through to shareholders, so I'm not about to put that at risk.

Steven Clark: Just looking at the cost structure from the point of view that Adelaide Bank has been a lean, mean fighting machine, have to take up further, whereas the two other groups, Bendigo and BOQ probably have a lot more ability to take costs out of, that's where I was coming from.

Robert Johanson: Well again, I think you're not wishing to be â€¦ anyone to be left with the impression that would â€¦ Bendigo's been fat and happy, that it is where those costs are incurred that you've got to â€¦ to think about, and our costs in Bendigo, we â€¦ we acknowledge that the investment we've made in building distribution, the rate that we have, has been a costly exercise, and there's been a number of our distribution points, as you know, they take some time to mature, and we've continued to invest in that, and we will continue.

Rob Hunt: But one of the â€¦ one of the â€¦ I'll come back to Jamie's point. One of the big differences is â€¦ one of the cost bases includes you know, distribution costs, and the other one doesn't, and that's of course because that's actually effectively outsourced to the third party. So they're just different â€¦ they're different businesses, so you â€¦ I think to compare them is very, very difficult, without taking all that into account.

Steven Clark: Thank you gentlemen.

Mark Tope: Can I make a bit of a change there? It's Mark Tope from Pateron's, just first question to Jamie, Jamie, would you make a comment, I guess it is definitely the idea that the banking sector might go through a phased consolidation, were there to be a higher bid for Adelaide Bank, what would be your thinking on that â€¦ on that â€¦ on it?

Jamie McPhee: Mark, that's a decision for the board, and the board has a responsibility, I don't have anything more to say about that.

Mark Tope: Okay, and secondly, just following up on that cost, obviously the cost to income ratio between the two banks is quite â€¦ there's quite a difference there. Just following on, for cost structure going forward, do we â€¦ what sort of comment have we got in terms of where the cost income might settle, if you use that measure, or more broadly, in terms of the ability to reduce the combined groups for cost to income ratio?

Jamie McPhee: I'll start with that, you've got a â€¦ as you say, you've got these two different cost bases, so what you can do, is you can do the maths on the merged entity, we've talked a lot about synergy, that's $60 million to $65 million synergy through those â€¦ through the errors, which have been talked about. I also believe something that Adelaide Bank has a journey, which we've embarked on over the last six to nine months, is our wholly manufacturing principles, and that's something that I've talked a fair bit to â€¦ to Rob about, and it would be fair to say we're â€¦ we're both on the same page, that I think there's enormous amount of cost that can be driven out of an organisation through actually streamlining your processes, and to look at all your processes, there's no doubt the financial service sector has many inefficient processes, and to take the principle of remove the waste from those processes, to make sure each part of that process is a value-adding activity. And what that does, is give the customer a much better experience, the staff are more engaged 'cause they're not doing non value-add activities which becomes highly frustrating, that flow straight through to your bottom lines, the shareholders get the benefit.

I mean that's not a bad trifecta. There is, in my view, not just in â€¦ in â€¦ in merged care, but just as a general comment, there's an enormous amount of streamlining that can be done in the financial services sector, and we are embarking on that journey, and we'll pursue that with vigour.

Rob Hunt: Okay, I can only echo that, I mean one of the big benefits out of the merger in some ways, is that we've had different models, and different approaches, and there's a good chance to have a really good fresh look at which one you know, does things better, which one has a better process, and then also, just by bringing the merged entities together, or the organisations together, the merger process will be looking at getting the best practice that we can, in each of the major areas that are going to be you know, I guess combined. So it's a good chance just to have a look. Have we set a target? No, we haven't, we've really said we've got to keep the momentum of the two businesses, and we've got to keep the progress, so perhaps initially, we're making sure that we're still continuing to make progress in the retail business and in Adelaide's business, but obviously aiming for a better overall outcome from the merged entity.

Mark Tope: Right, thank you.

Ben Koo: Hi, I just have a follow-up question in the cost savers as well, just trying to get a better feel for where the 60 to 65, how that gets made up, because you talk about say maybe 200 staff's FTEs being reduced, possibly that might deliver maybe 10 to 15, and Jamie, you're talking about the lean manufacturing, is that really what the bulk of â€¦ versus the IT cost saving? I'm just trying to get a feel for the various buckets of the cost save.

Jamie McPhee: Yeah, no Ben it's â€¦ lean hasn't been built into those cost savings, that's something that would â€¦ would further improve the performance of the merged entity. The costs basically around your staff, around your IT, around your regulatory and governance type â€¦ type issues. Probably take quite a simple case of where you know, your â€¦ your disaster recovery sites, you don't need two, you need â€¦ you need one. When you talk about things like all the â€¦ the expenditure on things like anti money laundering and these types of things, then there's enormous costs in those sorts of things, and they're just becoming greater every month that goes past, and actually, when you really work through each line item of your businesses, there is enormous amount of duplication of those costs, much more so than I think would be immediately obvious, to just looking in at two businesses. So it's really across those three areas.

Ben Koo: Okay, thank you.

Cheryl Wu: Hi guys, it's Cheryl Wu from Macquarie, just a quick question for Jamie I guess. You might have answered this a little bit just before, if BOQ was to come back with a similar offer today, and you're sounding like you can achieve a similar level of synergies, because given â€¦ if I look at most of the areas you've identified, it's a lot â€¦ a lot of it involved you know, back office sharing, which you know, could be simililary accepted on the BOQ deal. How does that, or would that actually change your view or commitment to the current proposal?

Jamie McPhee: I mean we're committed to this transaction, I mean we've been discussing for a long period of time, as Rob said, for â€¦ he spoke to me prior to Christmas, and we started having a look at how â€¦ what we think we could unlock the best value for this organisation. We have looked at a whole range of sort of options open to the organisation, we have spent an enormous amount of time and effort over the last seven months, going through a very disciplined and detailed process, and what we're really saying to our shareholders, is that we believe this is in the best interest to their shareholders, and we're putting that proposition to the market, and to our shareholders. We're absolutely committed to this â€¦ to this transaction.

Rob Hunt: We â€¦ if we haven't demonstrated it today, I can assure you, we are absolutely convinced that these organisations can be merged, the synergies obtained and new opportunities will emerge with this organisation that wouldn't otherwise be available to the individual organisations, and you know, the alignment, and the complimentary nature of the two strategies are you know, really make it, for me, you know, quite compelling in terms of â€¦ and given greater degree of certainty for us being able to produce the shareholder outcomes that we're putting in these papers.

Cheryl Wu: Okay, thanks.

Ian Rogers, The Sheet: Yeah, g'day Jamie and Rob, I wondered what the pair of you have been hearing recently from the lenders mortgage insurance companies. I'm interested in the extent to which Genworth and PMI are, cracking down. Secondly, I wanted to also talk about strength of credit growth in the first five to six weeks of the financial year, just to compare with the strong numbers we saw in June.

Rob Hunt: Yeah, I'll answer this, the first one is in relation to the LMI guys, they're pretty happy with us at the moment.

Ian Rogers: Right.

Jamie McPhee: Our â€¦ our portfolio across our whole mortgage portfolio of 90 days in arrears are the lowest level it's been since December '05, we've worked extremely hard on the credit quality of our portfolio. We saw â€¦ we're quite proud that about 18 months ago, we saw a couple of worrying trends, we've invested very heavily in fraud detection tools, right through 2006 we've made adjustments to our policy, to get to the stage where it appears that, whether it's in the US, or whatever the trend appears to be going north, our trend is going south. So at the end of the day, our pulls of mortgages to the mortgage lost insurers are actually business that they want to do. We work very close with the mortgage loss insurers, and we're absolutely comfortable that that relationship is as strong as it's ever been, in fact I think we're demonstrating in a way that we're managing the credit within our portfolios as they're very comfortable.

In relation to credit growth, we've actually continued to see credit growth right across all our portfolios for the month of July, at rates the same or better than the previous 12 months. You might interested that our margin lending book has grown in August, through all this volatility. I can promise you that we've had to make a few extra margin calls, nothing excessive, we have not incurred any loss in that portfolio, and that continues to grow. There's only 170,000 Australians with margin loan accounts, and there 7.2 million Australians that own shares directly, so that's becoming more of a mainstream product. Across our mortgage portfolio, the mortgage portfolio grew in July at slight â€¦ at above the average of the previous 12 months. So from a credit growth perspective, we think we're in very good shape.

Rob Hunt: Yep, I can only ehco the LMI thing, we do have an internal captive for the very, you know, straightforward sort of housing, but our credit outcomes are excellent for the year, and we're not seeing any deterioration at all in our â€¦ in our processes, and nor are we getting any â€¦ any feedback to â€¦ other than positive from the â€¦ the mortgage insurance. Volumes, you wouldn't expect some of the volumes that occurred in â€¦ in June, they were a bit of an aboration, you know, but really we've been â€¦ we've been you know, steadily growing, I think really since about November when I think I said at the half year we largely completed a lot of integration of the â€¦ of the you know, the restructuring of the retail part of our business, integrating community banks, and we've seen you know, a focus back on growing business since then, and it's been â€¦ and it's pretty much continuing on those sorts of levels, barring you know, the June type numbers that came through with you know, people's superannuation.

Ian Rogers: Thank you.

Eric Johnston: G'day guys, it's Eric. Just wondering, was this the reason why you guys rejected that offer by Bank of Queensland? Shortly, or a couple of months ago?

Robert Johanson: Well again, you have to make a judgment when you're a board member, as to what's possible, and the risks that â€¦ the risks that â€¦ that a proposed transaction would entail. We certainly â€¦ some people at the time, took the view that we were crawling back into our rabbit burrow, and saying that we didn't want to engage with anybody, but that wasn't the case, and we certainly did take account of the other opportunities that we thought could be there. As you can imagine, at this time, and these â€¦ these times in financial services, there is a lot of talk goes on. But the talks we've had with Adelaide, have been for a lot longer than even time that Jamie's been involved, have been â€¦ you know, we've â€¦ Rob and I have had a strong view, that the merger between these organisations would produce the best outcome for all the stakeholders, and in particular, the shareholders.

Eric Johnston: It just â€¦ from the outset though, this smacks of Bendigo wanting to be acquired rather than â€¦ sorry, Bendigo wanting to do the acquiring rather than it being acquired.

Rob Hunt: No.

Robert Johanson: No, I don't think that's right. It is â€¦ it is whether the transaction will be of interest to the stakeholders, and produce value for them. And we have â€¦ we are â€¦ we've â€¦ we've never had â€¦ I think this is true, since 18 whatever it was, we've never had any restrictions on â€¦ on who can own our shares, we've always been contestable. But the decisions won't be made in the end by the board, the decisions will be made by the shareholders, and it's a judgment about the decision, what the things that they're interested in, that we need to make.

Eric Johnston: Okay, just finally â€¦ I'll let someone else have a go, but finally, do you think this deal, the combination of Adelaide and Bendigo is a much more â€¦ would be a much more powerful organisation than the Bank of Queensland and Bendigo?

Robert Johanson: Well we â€¦ at the time when we were discussing the transaction, or the proposed transaction with Queensland, you will remember that we said we â€¦ there are a number of major strategic issues that we have with the structure of the two organisations, and they aren't issues that exist between these two. And I'm not â€¦ I'm not looking to disparage the judgments that other people have made about different business structures, there is a choice to be made about whether or not, for example, you outsource a lot of your activities, technology. We have always taken the view that technology is an intregral element to what â€¦ what a bank is, that you need to â€¦ not that you'd have to do it all yourself, but that investment in control of the technology process, is at the core of what you're doing in your relationships. That was one issue that we discussed publicly. So there were â€¦ there were a number of serious structural issues that when you're trying to â€¦ trying to make decisions about what's going to create the best organisation in the long-term, that you need to get to grips with. In Adelaide, we don't have those issues, we are â€¦ we have each taken the same view on those really kind of core structural issues about what it is that â€¦ that is â€¦ that is a bank.

Eric Johnston: Okay, thank so much.

Brendon Swift: Hi there, thanks for taking my question. Just wanted to know, just a question for â€¦ for Bendigo Bank, just wanted to know what the Bendigo shareholders think of Adelaide Bank, obviously you did polling several months ago.

Robert Johanson: I don't think we asked them that question, but I think that they'd see Adelaide Bank as an excellent bank, serving you know, customers in a different way, but basically being of excellent reputation, and I think that other than those, there may well be customers also of Adelaide Bank, if they've experienced, that they would know that there is a lot of similarity around customer focus. If they haven't experienced it, I guess they will probably be a little indifferent, and say well, I just think they're another really good bank in Australia.

Brendon Swift: It just seemed previously one of the reasons given for not exhausting the Bank of Queensland bit was that Bendigo shareholders had expressed a negative view of that sort of view, I'm just wondering what the difference is now, that you're obviously endorsing an Adelaide Bank review without doing some preliminary calling of your shareholders, which was done with the Bank of Queensland.

Robert Johanson: Well certainly careful readers of the Bendigo advertiser may well have detected some hostility, and â€¦ but the issues that they raised, are not issues that would be raised by this transaction.

Brendon Swift: Can you â€¦ can you describe all those issues again, exactly why they â€¦ why they're different?

Robert Johanson: It is the â€¦ is it that sense of being proud of the organisation, of which their owners, customers and advocates, and the â€¦ and again, don't trust me on this, look at the responses we got from our â€¦ from our shareholders on the thousands of responses that we got, the opportunities they did have to contribute to it, about what they saw as the threats to their relationship with the organisation.

Brendan Swift: And what are your â€¦ your views, or do you have concerns the Bank of Queensland, or some other firm may now still launch that as a hostile bid, now that Adelaide Bank and Bendigo are integrating?

Rob Hunt: We are â€¦ we are â€¦ we are every day contestable, and that's â€¦ that's the virtue of the markets isn't it? But in the end, the decisions get made by those shareholders, they don't get made by boards.

Brendan Swift: Just â€¦ just one last question, the â€¦ the deal with â€¦ obviously sort of out the top of the banking cycle, or perhaps even a little bit past it, just wondering why you, perhaps haven't put in a cash component or offer, or would offer an all-cash alternative?

Rob Hunt: We're not at the top of the banking cycle, we're â€¦ we are two organisations that in â€¦ that are â€¦ that â€¦ that have very small parts of the total Australian banking market. What we're trying to do is, by this merger, bring both sets of shareholders and other stakeholders together to create a better organisation. If people want to cash out, then they do that â€¦ they can do that every day, but that's not what we're â€¦ that's not what the proposition we're creating here is.

Brendan Swift: Where exactly are we in the â€¦ in the banking cycle?

Rob Hunt: Well as I say, for us, we are both growing strongly, and sure, we're both enjoying some of the benefits of credit growth that seems to be continuing of what you'd reckon must be unsustainable levels. But our growth isn't â€¦ and I'm sure we're benefiting from that, but our growth isn't really coming so much from that sort of activity. It is by getting more customers, it's going into new places with our proposition, and getting business in that way.

Jamie McPhee: Yeah, I'd like to endorse that, I mean you're talking about the banking cycle, I'd prefer to talk about our business model cycle, and you can make your own judgment on the banking cycle. There is no doubt, in my view, that Adelaide Bank has plenty of upside in the areas that it's â€¦ it's operating, I actually agree exactly the same thing with Bendigo Bank, and then the point is that then the merged entity has great opportunity going forward.

Brendan Swift: Thanks very much.

Mark Tope: Got the name right that time, just â€¦ just Rob, just two questions. I guess if you look at the businesses that Adelaide's drop is slightly different to Bendigo's, then perhaps one might be marginal lending. Have you got any comments on the â€¦ how you see the relative attractiveness of that business, and also the AMF presence, which Adelaide is steadily building? Do you find that you're quite comfortable with both of those businesses, and I suppose it's a bit of a coincidence, but you've got all these client base sitting in that marginal lending book as well?

Rob Hunt: Yeah, look Mark, we have marginal lending, but it's â€¦ as I said, it's one of those things that was never â€¦ that's never got to the â€¦ to the high priority list with all the other things we had to do, and it's a very, very small book. We actually think margin lending is a key part of wealth creation, and future structuring for people, and â€¦ and we think it's a key product that will be very valuable within the customer base of our organisation, it's also a valuable business in its own right, and with the relationships and partnerships it has. So we're very comfortable, that's one of the really â€¦ you know, big pluses like wholesale mortgages, that's one of the bigger items. But in terms of AMF, we're very much of the view that product will emerge that will create different asset classes and different investment opportunities for the broader customer base, as asset â€¦ as the asset pools tend to overflow and be looking for new investment categories, we're a the very early stages in our retail network with our wealth management, we've got about 14% of our customers, of our 1.2 million customers or thereabouts, 1.1, you know, have a wealth management product, and it would probably be a relatively simple one from us, because that's how we've kept you know, our offer. So our view is that these other products will emerge, they â€¦ if they can be built and manufactured within our own organisation, with the skill base that we have, that would be something that would be, I think, attractive for the broader base of Bendigo.

Mark Tope: Thank you.

Robert Johanson: Alright, I think that's the last, thank you all very much.

Rob Hunt: Yeah, thank you all for attention.

Jamie McPhee: Yes, thanks all.

Adele Lloyd: Thank you everyone.

Adelaide and Bendigo banks joint investor briefing transcript

More from this Edition