Elliott has certainly left a cleaner bank and importantly a far less risky one that delivers fewer financial trademark shocks, but Australia’s perennial number four bank is still a long way from meeting its potential.
Former HSBC top executive and Santander banker Nuno Matos takes charge on Monday. It’s by no means a broken business, however, where Elliott has unfinished work getting ANZ into shape, Matos’ mandate will be all about execution.
When he took charge at the start of 2016, Elliott set himself four strategic priorities: creating a simpler bank; focusing ANZ on businesses where it can win; driving a cultural transformation; and building a digital platform to get the bank’s ageing technology in shape.
Elliott, the former institutional banker, moved quickly on the first two. He sold 30 businesses, mostly across Asia, and exited ANZ’s problematic wealth management operations.
In doing so, he raised about $8bn for shareholders. This started the journey of ANZ becoming a transaction-led institutional bank in Asia, processing currency flows and backing trade focused business. Importantly, this ripped risk out of ANZ’s accident-prone balance sheet.
“The one that I wouldn’t give myself a perfect score on was the digitisation of the business. I think we’ve made progress. I think in hindsight, what I was a bit naive about was how hard that would be,” Elliott tells The Australian.
He is talking about the massive rebuild of ANZ’s tech network, that has now delivered ANZ Plus, a project that has cost billions and arrived years late.
Only now Elliott’s ANZ Plus is being switched on with 5 million retail banking customers and another 600,000 small businesses and all their banking data gradually being moved onto the new cloud-based platform. This represents a highly disruptive period for the bank and needs to be handled with care.
The promised benefits of having a lower cost to serve customers and all the features including speed for customers are yet to be seen at scale. At the same time a second all-digital platform for big business customers is also about to be rolled out.
Elliott says “life got in the way” for ANZ with events like the 2018 banking royal commission and Covid pandemic, which each caused major distraction.
“I’m not making excuses, but I’m just saying if you’d asked me in 2016 where I would hope to be in 2025 we would have hoped to be further down that track. Some of it’s environmental and some of it is just a lot harder than it looks”.
Although he proudly points out ANZ was the first to bring in Apple Pay, mobile payments technology we now take for granted.
Other jobs Matos will inherit involve the full integration of Suncorp’s banking arm, the $4.9bn deal was delayed in getting regulatory approvals that only arrived last year. This buyout was partly anchored in a digital strategy by putting another million new customers onto ANZ Plus, helping to spread the cost of the investment over a bigger base.
Elliott was speaking as ANZ posted a March half cash profit of $3.57bn, flat on the same time last year and meeting market expectations. The result was struck on record revenue and boosted by the first-time contribution of Suncorp.
Stripping that contribution out, the headline result would have gone slightly backwards. The bank overall is generating record revenue and credit losses remain grounded near historic lows despite the interest rates hitting a cyclical high.
To indicate the derisking journey, when Elliott started, ANZ’s ratio as a proportion of shareholder equity was pushing up into the 7 per cent zone, representing a major stress on the balance sheet. Today its closer to 2 per cent, which is well into the green zone.
ANZ trading scandal
There’s no doubt Elliott’s legacy has been tarnished by the past year, when a bond scandal in his Sydney dealing room has attracted the attention of regulators. Several traders have since been sacked for behaviour issues, while market regulator ASIC has an investigation underway into more serious allegations of pricing manipulation in Australian government bond issues. ANZ has investigated the claims forensically and is expected to defend its position. However, it is waiting until ASIC finalises its investigation, expected next month.
The bank regulator APRA has now told ANZ to set aside $1bn in additional capital for now, due to concerns about persistent risk governance and culture. This is more than any other bank, and would be funds otherwise that could be converted into loans.
A separate review into culture has made, and chairman Paul O’Sullivan has taken charge of non-financial risk.
Elliott says where ANZ has turned financial risk management into a strength, moving from a position of having the highest provisions and volatile credit exposures to the lowest there is work on non-financial risks.
“I’m also confident in the team’s ability to get on top of that (non-financial risk) pretty quickly,” he says.
ANZ v Westpac, CBA
In many ways, the lack of acute regulatory shocks over the past decade has worked against ANZ. Both Commonwealth Bank and Westpac were shaken to the core by their respective hits from financial crimes regulator Austrac and forced to get their cultural houses in order. Then National Australia Bank went through the fire when its top management and board was singled out for criticism coming out of the Hayne financial commission.
By comparison, ANZ sailed through, allowing a degree of complacency to set in around non-financial risks. ANZ’s federated structure of managing risk at a business level rather than a group-wide level, may have served it through targeted issues like anti-money laundering and the banking royal commission, it still allowed cracks for non-financial risks and poor behaviour. ANZ is now reverting to a group-wide risk management, allowing it to join the dots.
Elliott acknowledges he could have moved faster in some areas, this echoes the reflections both public and private company leaders have often told him.
“When people look back they never say, ‘In hindsight, I was far too bold, and I was too fast’. They always say, ‘I should have gone faster, and I should have had more courage’ And I would say the same thing.”
The 61-year-old Elliott hasn’t made the call of what’s next apart from going to the gym on Saturday morning. He will take time out before making that call.
Super regional
ANZ was at the tail end of its “Super Regional” strategy under former boss Mike Smith (another HSBC banker), when Elliott was promoted in 2016. That plan involved ANZ building up a pan-Asian strategy, taking on the likes of HSBC, Citi and even Singapore’s DBS.
The Asian push had been years in the making. Smith’s predecessors, including John McFarlane, had set it in motion by acquiring a collection of mostly minority stakes in banking businesses from Malaysia to China. Smith’s job was to stitch them all together.
However, ANZ’s balance sheet was too small to support the capital intensity needed to build out in Asia, particularly retail. Also, the business it was chasing were often the customers HSBC or Citi didn’t want. ANZ was ploughing precious capital into lower returning offshore operations, and its franchise in Australia was suffering. Elliott’s first job was to pull the “Super Regional” strategy apart.
Elliott believes there is still a place for banks to grow meaningfully outside their home market, but the notion of “big global retail banks is over”.
This shouldn’t assume the super regional push was flawed. Indeed, it was based on a lot of very logical assumptions, Elliott says. The world was globalising, barriers to entry were coming down, and banking regulations were harmonising between countries.
However, the Global Financial Crisis turned everything upside down. Each country started putting in place its own regulations and ring-fencing of capital, making the whole exercise uneconomic.
“The strategy wasn’t wildly wrong. The real problem is that the predictions of the future were just wrong,” he says.
Even today, global names like HSBC and Citi continue to pull back to focus on key markets areas where returns are better.
What ANZ retained in Asia was an institutional trade financing business focused on intra-Asia flows. It also pared back its client list to focus on the big lower-risk corporate names, and to bank more of their business.
Elliott has spent nearly a decade building out a new foundation for ANZ. Like most CEOs playing it forward, he won’t see the benefits. Only time will tell whether he has delivered a meaningfully different bank.
johnstone@theaustralian.com.au
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