Can Australian small businesses survive Trump turmoil?

AMP Bank is confident Australian small businesses can ride out the emerging turmoil in global markets as the local economy continues to hold up stronger than expected.

There are growing fears the US will drag the global economy into a recession after President Donald Trump imposed sweeping tariffs, including on Australian aluminium and steel, and announced widespread cuts to the US public service.

AMP Bank chief executive Sean O’Malley is confident small businesses will survive the global turmoil.

But AMP Bank, which is making a move into the small business lending sector, is optimistic that the fundamentals of the Australian economy are going to hold up.

“We’ve seen the Australian economy being resilient; we’ve seen consumers continue to be really resilient, which is fantastic. Obviously unemployment rates are really holding up, which is fantastic,” AMP Bank chief executive Sean O’Malley told this masthead.

“A resilient consumer and an economy that is continuing to do better than maybe others thought, that’s good for a small business because that’s the market in which it is operating.”

Trump sent Wall Street and global investors into a panic last week after he refused to rule out that the US could be heading into recession. The S&P 500 has dropped more than 8 per cent since Trump’s first day in the White House. The ASX 200 fell 7 per cent over that period to trade at near six-month lows.

However, most experts believe the global economy is in reasonable shape, and the hit to the Australian economy will come from the tariffs imposed on China. AMP economist Shane Oliver told The Age and The Sydney Morning Herald at the weekend that Australian exports to the US were “not that great”.

The US is Australia’s third-largest two-way trading partner. In 2023, Australia exported $33.6 billion worth of goods to the US, and imported $65.1 billion. In the same period, Australia exported $137 billion worth of goods to China, and imported $72.3 billion.

AMP, which is still reeling from the Hayne royal commission, and whose shares are down 80 per cent over the past decade, has been simplifying its business to arrest years of losses.

‘We’re really looking to help businesses to get started, to survive and to thrive.’

AMP Bank chief executive Sean O’Malley

The financial services giant sold a portion of its advice arm last year and it is making a play for small businesses through its banking division, which suffered a 39 per cent fall in net profit to $35 million amid rising arrears and hardship cases.

AMP Bank launched its app-based digital bank for small businesses last month, vowing to “disrupt” the market and expand beyond its retail offering that has lower margins.

“We’re really looking to help businesses to get started, to survive and to thrive,” O’Malley said. “And the ways in which we think we can do that, and that our new offering really helps, is simplicity … and experience for those small businesses.”

The digital bank will target start-up companies with fewer than 20 employees and focus on the “small end of small business with [about] five employees”. Business transaction accounts pay less interest compared with retail savings accounts, making it more profitable for lenders.

AMP has partnered with accounting firm Xero to enable its customers to connect their banking and accounting through its digital app. O’Malley said AMP had identified a gap in the market, and flagged other partnerships targeted at small businesses. The bank’s investment in its new app will cost $60 million over the next few years.

Morningstar analyst Shaun Ler last month told clients in a note AMP Bank was being dragged down by its lack of cost advantage and the limited differentiation of its products.

Ler said while its digital bank could diversify funding sources and marginally improve its margins, that was unlikely to “significantly enhance AMP’s competitive position or generate material revenue synergies due to its limited complementary offerings”.

“Management’s present strategy is to restructure its wealth management business and continue to grow AMP Bank in a profitable manner,” Ler said.

“Cutting costs from non-growth areas is a core priority. While management has made good progress in turning around the business, it’s unlikely that AMP can improve its competitive position relative to peer (let alone reverting to its heyday) as competitive advantages from its distributional reach and brand recognition have materially weakened since 2018.”

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