ANZ the beneficiary of the flight to safety by corporate customers

In the wake of US bank SVB’s collapse, corporates have headed to ANZ seeking access to its AA credit rating.

ANZ Institutional Group executive Mark Whelan. Picture: Stuart McEvoy

The collapse of Silicon Valley Bank in the US and the takeover of Credit Suisse has resulted in ANZ’s global business clients choosing a safer haven by loading up on credit and transferring funds out of at-risk markets, the bank’s head of institutional banking Mark Whelan says.

Mr Whelan, whose section deals with corporate, government and financial institution clients, said that in recent weeks customers had been opening new lines of credit and taking out loans as a safety strategy.

The move came as fears of debt and capital markets permeated the sector.

“In that sort of situation, you find that … bigger companies just take more facilities out, they may not draw down on them with the bank but they have it there … It’s a bit like having your own home loan with a redraw facility,” he said.

“It’s only in the last two to three weeks where we have seen a little bit of interest in that but it’s not nearly of the scale that we saw during Covid-19.”

ANZ opened a war room during the early days of the Covid-19 pandemic to deal with the billions of dollars in loans it extended in eight weeks.

But Mr Whelan said the financial market ructions also prompted many firms to pull back from financing merger and acquisition deals.

He said there were now a number of deals that were “ready to go”, but buyers were waiting for markets to calm down.

“People in this market will be willing to stand back and say ‘let’s just wait to see where the markets are going’,” he said.

Mr Whelan said buyers may be hoping to get a cheaper price or may be concerned about securing funding.

“They are concerned about getting the funding that they require to get that asset because of the illiquidity in the debt capital markets and don’t want to just rely just on bank debt,” he said.

Mr Whelan said he expected deals to flow through in coming months as markets normalised, unless “another shoe drops … particularly in the US”.

The latest concerns in financial markets centre on American regional banks, which lent heavily on commercial properties.

Mr Whelan said he hoped the US government would be able to calm investor jitters but Australia’s markets continued to be attractive for debt issuers.

The 30-year banking veteran said the shutdown in debt capital markets after SVB’s collapse resulted in many institutional customers looking at issuing debt into Australia’s markets in a flight to safety.

“Financial institutions and multinationals want access to capital and when you see an event like this there is a flight back to capital,” he said.

“You’re seeing a lot more of the issuers, multinational companies … look to access the Australian market. I think that will continue.”

ANZ’s attractive AA credit rating, shared by Australia’s other big banks, is proving a drawcard during the economic uncertainty.

ANZ tapped the markets in two issuances earlier this week, raising $4.25bn, as it seeks to lock down more funding.

“The first thing you do when you see market dislocation like that is you review your portfolio risk assumptions,” Mr Whelan said.

“The second thing is you look to where the opportunities lie and which customers we can help in this space.”

ANZ’s head of financial institutions North Asia, Annabel Squier, said the bank had in recent weeks received calls from a number from corporate and institutional clients attempting to secure a safe harbour.

But Ms Squier said ANZ was not keen to on-board new customers without good reason, noting her business had spent several years slimming down its overall customer numbers from 26,000 to just 7000 today.

“We are very quick to say yes or no because if it’s a knee-jerk reaction … and if they’re playing in a space we’re not entirely comfortable, with it’s a very quick ‘no’,” she said.

“We’re not just going to take it on and grow back to 27,000.”

ANZ’s institutional arm spent several years exiting low-margin or unprofitable clients, cutting its workforce and slashing risk-weighted assets.

The bank pulled back to core clients operating across its footprint in Australia, New Zealand and Asia.

But ANZ is growing the institutional business, and has a goal to get return on equity near the retail bank.

Its results for the 2022 financial year showed the institutional bank delivered 0.9 per cent return on average risk-weighted assets.

This was compared with 1.8 per cent return from the retail division.

Customer deposits grew 6 per cent to $259bn, while loans lifted 12 per cent to $196.7bn.

Mr Whelan said ANZ had won several major banking mandates, snagging both the South Australian and New South Wales government’s mandates.

“Queensland will come up a bit later in the year but so we’ll be active in that,” he said.

“There’s been a lot of other corporate mandates in Australia and a lot of mandates here in Asia, which had been of that cross-jurisdictional nature.”

The growth of the institutional business in Asia has allowed ANZ to send funds back to Australia on the back of the strong institutional deposit book to fund the bank’s Australian home lending business.

“We’re now in a position where this is a real asset for the group,” Mr Whelan said.

ANZ’s international business has faced several periods of growth and retreat as the changing rules around capital saw the plan by former CEO Mike Smith, to grow a retail business across South East Asia, dashed.

This caused ANZ across Indonesia and Vietnam going toe to toe with local banks in the mortgage market.

But capital changes and a new set of hands under ANZ’s new chief executive Shayne Elliot resulted in this strategy being unwound.

ANZ sold its Vietnamese retail business in 2017 to South Korea’s Shinhan Bank.

It has been planning to exit its remaining stake in Indonesia and has made several attempts to sell a $1bn stake in Panin Bank.

Mr Whelan said efforts made across ANZ since 2011 to bring the entire institutional bank under new technology platforms was paying dividends.

The simplification strategy meant the bank binned several products it was offering to customers.

But Mr Whelan said the diversion into retail banking and an attempt to grow ANZ’s commercial customer book had caused a lot of energy to be expended over several years that had to be unwound.

“I think we lost our way then,” he said.

The author visited Hong Kong as a guest of ANZ

Originally published as ANZ the beneficiary of the flight to safety by corporate customers