Annual General Meeting Chairman's Address 24/10/2011

In 2010 -11, Bendigo and Adelaide Bank built further on its strong recovery from the effects of the global financial crisis. The surge in earnings in the previous year was followed by further solid gains.

This graph is drawn from this year’s annual report and shows profits and earnings for the past 5 years. 2008 was the year of the merger between Bendigo and Adelaide banks and the year before the crisis hit the funding and earnings of the financial sector. 2009 was the year when our earnings were affected by the sharp decline in interest rates and asset values write offs.

It is a feature of the structure of our balance sheet and our reliance on retail funding that dramatic damages in pricing of either assets or liabilities affect our earnings quickly but are then adjusted for quickly.

The graph shows the surge in earnings in 2010 and now further solid gains in 2011.

The next graph shows the profits and earnings over 10 years. It shows the steady and very large increase in the size of the business. We are managing this business for the long-term. The long term trends are obvious as we have worked through the short term ructions of the crisis.

The merger between Adelaide and Bendigo banks occurred in 2008. The next graph shows the earnings of the two organisations prior to the merger and then the combined earnings after the merger.

This shows that the combined company is a more powerful company and reflects the organizational benefits of the merger. It has contributed to benefits like the ratings upgrade we received from Fitch in May this year: Bendigo and Adelaide Bank is one of very few banks around the world to get an upgrade of any kind over the past 5 years.

The next slide shows cash earnings per share over the last 5 years. The crisis and in particular the collapse of the debt and securitisation markets resulted in the issuance since mid 2008 of $580 million of new equity through share purchase plans and placements and another $200 million through the dividend reinvestment and bonus share plans. So the number of shares on issue in June 2007 was 139 million, after the merger it was 257 million, and now it is 367 million.

The next slide shows the cash earnings per share over 10 years. In June 2001 we had 110 million shares on issue so up to 2007 issued only another 29 million new shares.

Increasing capital requirements, so lower risk, more conservative balance sheets are part of the new, stricter, regulatory world of banking.

The next slide shows returns on equity over the last 10 years. The returns in tangible equity are the returns on the cash invested by shareholders over the years. They are good returns, returning better than our cost of capital, competitive with the major banks as they must be.

Returns on investments in banking in Australia are among the highest in the world. Yet even here we should expect that the requirements for additional capital under the new rules will reduce the returns that banks deliver to shareholders.

Following the release of APRA’s discussion paper relating to the Basel III capital requirements, the Bank will need to increase its tier one capital ratio to in excess of 8.5pc by 2015. It is our intention to move to this level well before that date.

We will achieve this through ongoing organic capital generation and the strong support of our shareholders through the DRP, and the potential use of cost effective hybrid capital structures to bridge the gap between our current capital levels of approximately eight per cent tier one and this target.

At the end of the last financial year, it seemed that our markets had settled. Growth in both assets and liabilities was better than most of our competition without leading on price. Credit quality is sound.

But the last few months have rattled the markets and confirmed Australian customers in their habits of thrift. So you have seen others banks talk of pay freezes and cost reductions and expectations of growth have shrunk or faded away.

In these times, we have a choice: either we batten down the hatches and defend our position, or we continue to invest when others are not investing.

We will continue to invest in and to build our business. I hope my earlier slides showing a ten year view of the growth of the business gives you a sense of the momentum of the business and our steady purpose.

I said when we opened the new building in Bendigo in December 2008, in the depths of the crisis, that we were determined to emerge from it in better shape than we went into it, stronger, more capable of serving our customers and their communities. We are now stronger and more capable, but there is much more to do.

We are continually investing in new technology and new products. Our wealth business is expanding its capability significantly.

Many of our branches are still in early growth phase. We continue to open branches, 20 last year and we expect another 15 - 20 this year. We will establish new distribution arrangements such as the exciting agreement with Australia Post.

While in our Bendigo Bank brand we have one of the most trusted and valued brands in the market, we in fact have a wide range of different brands products and distribution channels and we will build them all.

We are investing in new infrastructure, new technology and new capacity. Our new home in Adelaide is under construction and we expect to move all our Adelaide based staff into this new, open planned, 6 green star rated building in late 2013.

So the rate of change at Bendigo and Adelaide Bank continues. But most importantly we remain focused on what produces our success, and that is the success of our customers, partners and their communities.

This must come first, and as we have shown, when it does, good shareholder returns follow.

I hope many of you have read Mike Hirst’s article on creating shared value which was published in the Age and which is available on our website. There is an extract in the Annual Review.

Thank you everyone who has worked so hard under what have been very difficult conditions over the past 4 years. Shareholders I hope appreciate the size of the business that is now Bendigo and Adelaide Bank and how tough have been the market conditions under which our staff have worked.

They have done a wonderful job and should feel very proud and we thank them for it. But there is a lot to do. We all look forward to the next stage with great excitement.

Thank you.