BOQ cuts 250 jobs, takes $79m hit to earnings in cost-cutting restructuring

The Brisbane-based lender reveals hit from restructure as it completes the integration of ME bank.

Bank of Queensland will take a $79m hit to full-year earnings as it cuts 250 jobs to simplify its operations, improve its systems, and complete the integration of its 2021 purchase of ME Bank.

Revealing the charges ahead of the release of its full-year results on October 11, the Brisbane-based lender said it will book $50m in pre-tax redundancy costs and property and technology impairments in the second half.

BOQ has endured a tough year following a rapid expansion in recent years culminating in the sudden exit of its previous chief executive George Frazis in November amid the sharpest interest rate increases in decades.

In an effort to provide stability amid an uncertain outlook with high inflation and still rising rates, former chairman Patrick Allaway in March took over as chief executive until December next year. 

The bank was also slapped with an extra $50m capital requirement by the banking regulator in May over material weaknesses in its risk management practices and risk culture.

On Friday, BOQ said it had undertaken a “group wide” review of its operating model that had focused “on addressing BOQ’s complex operating structure and operating costs.”

The restructure will result in redundancy related costs of about $25m to “address approximately 250 impacted roles across the group” in the nine months ending November 30, it said in a statement to the exchange.

“This restructure brings like activities together under a shared service model, removing costs and aligning BOQ to its targeted future operating state,” the statement said.

Earlier this week, Goldman Sachs downgraded the bank’s rating to “sell” from “neutral” highlighting the BOQ’s challenges in becoming a stronger and simpler bank.

“Non-staff cost inflation remains a material headwind for the sector … and we think this will more adversely impact the smaller banks, given their relative lack of scale,” the broker told investors. “This will particularly impact BOQ given it is in the midst of its transformation project.”

BOQ said it will book a $14m technology-related impairment in the second half as well as $11m in costs to consolidate its floorspace by over 14,000 square metres across its offices in Brisbane, Sydney, Melbourne, and Perth.

It said it had “finalised” an integration program of its ME bank – which it bought for $1.33bn in 2021 – at a cost in line with its budget of between $130m to $140m. However, its recent review had resulted in additional impairments of $43m — or $30m after tax — during the second half of the current 2023 financial year.

The impairments came about from decisions to accelerate “the digital transformation of ME and transition into a single core-banking platform for the retail bank,” it said.

The ME integration has delivered $72m in annual cost synergies. “These synergies were achieved through alignment of operating models and technology integrations, consolidation of investment roadmaps, supply chains and shared services functions,” the statement said.

BOQ shares were largely unchanged on Friday.

The bank said it had made adjustments to the way it measures the weighted average life of its housing loan portfolio, resulting in lower net interest margins in the second half (about 3 basis points lower).

As part of the new methodology, the bank had restated its 2022 full-year profit to $491m, from the $508m it reported last year. Before that adjustment, stockbrokers polled by Visible Alpha had forecasted BOQ’s 2023 full-year profit would fall by about 5 per cent to $478m.