ANZ chief Nuno Matos lives up to his reputation with job cuts
ANZ chief Nuno Matos has opted to put a huge target out there first and then work back, rather than reveal specific areas likely to be hit by the cuts.
Nuno Matos wants ANZ to do “less things and better” as the new chief executive lived up to his reputation by moving both quickly and brutally, on one of the biggest rounds of Australian job cuts in the post-pandemic era.
The job losses over the coming year will total 4,500, including 1000 contractor positions, and represent nearly 10 per cent of ANZ’s workforce. They will be felt mostly in the retail bank, technology and head office roles.
This is the first dramatic insight into where Matos, the Portuguese banker and former top executive with HSBC, plans to take ANZ since he took charge in May. And ANZ’s steadily rising cost base is in his sights.
At its heart, his plan is to “get the basics right, do less and do it right,” Matos tells The Australian in an interview. This will involve “less duplication, less complexity, and stopping the things that are not strategic to the company”.
“We need to be a sharper company and everything we are doing is to put us in that position”.
It marks some of the deepest cuts of any major bank in the past few decades and the goes against the trend of lenders incrementally reduce costs, rather than going all out at once.
Matos’ shock treatment has attempted to address ANZ’s tendency to run “negative jaws” a situation where cost growth outstripping, revenue growth.
This becomes unsustainable over time and has happened in four of the past five years. For the past three years cost ANZ’s cost growth stubbornly held at 6 per cent which is still running ahead of inflation.
ANZ staffers and unions had been bracing for job losses, under Matos although the scale has taken many by surprise. The jobs announcement comes after Matos was mixing with the Prime Minister Anthony Albanese and Treasurer Jim Chalmers at the Business Council annual dinner in Sydney on Monday night. The Finance Sector Union slammed the planned cuts as “unhinged, reckless and unnecessary” by a highly profitable bank.
Target first
As part of this strategy Matos has opted to put a target out there first and then working back, rather than detailing the specific areas likely to be hit by the cuts. He’s also committed to keeping ANZ’s branch network and said front line impact will be kept to a minimum.
For context Westpac had an implied target of cutting around 5 per cent of roles in recent years, a figure that translates to around 1,700, while Telstra last year had one of the biggest wholesale cuts targeting up to 2,800 roles in an ongoing efficiency drive.
While he hasn’t been specific, it is expected the bulk of the cuts will be felt in Melbourne, where ANZ is headquartered. On Suncorp Matos was firm, telling The Australian the cuts had nothing to do with the recent acquisition of regional bank. Nor had it anything to do with onshoring or rolling out AI across the business.
The challenge for Matos will be around delivering on his targets, Australian banks remain complicated beasts with huge fixed cost bases and high regulatory demands. They also have a poor record when it comes to meeting cost-out promises. Indeed, Westpac recently abandoned its “aspirational” target of getting annualised costs down to $8bn, as it eventually gave in to inflation and regulatory costs.
At the same time, unless banks undergo major re-engineering, cost out programs usually only have a short term impact with expenses eventually finding their way back in.
ANZ’s core retail bank, business banking and corporate headquarters are expected to be targeted. Both are not performing to their potential, he said. The scale of the contractor cuts also suggest a number of technology programs, including the long overdue $1.5bn ANZ Plus project, has been modified. Matos says he wants to get the ANZ Plus app into the hands of customers “as soon as possible”.
He nominated the institutional and New Zealand business as performing well.
Matos had been planning a market briefing for next month, with more details are expected. It is there. Matos is expected to issue several new and aggressive earnings and costs targets.
At HSBC, Matos built a formidable reputation for tight cost control inside the sprawling bank. ANZ, which has undergone waves of expansion through Asia, which was then reversed under previous boss Shayne Elliott. However, it has struggled to get on top of its cost base. As the smallest of the big four, it couldn’t spread the costs across a larger customer footprint.
Even so, Elliott doubled down on retail banking with the $4.9bn acquisition of Suncorp’s banking arm, a deal finalised last year.
Where Elliott exited dozens of risky or low-returning businesses, he resisted cutting core costs. Over the past year the Australian headcount increased 11 per cent with the addition of 2.700 Suncorp staff.
While ANZ has been battling with regulators over problems with its so-called non-financial risks, investors have been looking for more.
On this there are two areas where Matos is expected to strike: The first is improving efficiency by aggressively lowering the bank’s cost-to-income ratio from current levels that sit above 52 per cent. He wants closer where rivals like CBA and National Australia Bank operate in the mid-to-high 40 per cent range. The fastest way to achieve that is by slashing jobs.
The second area to win over shareholders will be a closely-watched measure of shareholder returns – return on equity – for ANZ, currently around 10 per cent (market leader CBA is closer to 13 per cent).
These two goals are increasingly being adopted by European banks to lift performance.
The upheaval too comes at a critical time, with each of ANZ’s rivals doubling down on lucrative business banking and the mortgage market again heating up. Any loss of market share in these areas will make it even harder for ANZ to catch up.
After a little more than three months, and most of these being under wraps, Matos labelled the Australian banking market as highly competitive, highly regulated and well developed. But it was also a market that over time has become less profitable.
“It’s a market that demands players to be at their best and to execute properly to customers”.
What we are doing is to put ourselves in a situation where we can do that”.
–
AI boom
Future Fund boss Raphael Arndt says he’s still in the camp where he believes artificial intelligence will deliver productivity dividends faster than most expect.
That makes him a market believer in the tech, despite rising doubts among some benefits are overstated with bubble conditions building in the sector.
“That doesn’t mean you pay any price (for AI), so you have to be judicious,” Arndt tells The Australian. On the whole there’s more upside in select parts of the AI chain with the $250bn Future Fund spreading its AI bets across data centres, venture capital and energy providers.
“We do think it’s a very profound opportunity and that’s balancing our view on equity risk”.
Arndt says the bulk of the so-called “Magnificent Seven” tech stocks have still seen remarkable earnings growth come through, which is significant, he says. The Future Fund upped its exposure to the sector through the buyout of a stake in Australia’s CDC Data Centres earlier this year.
Last financial year, the Canberra-backed Future Fund delivered a 12.2 per cent return against its benchmark of 6.1 per cent. That puts its 10-year returns at 8 per cent annualised also ahead of its benchmark of 6.9 per cent. The gains in the past year were backed by exposure to infrastructure, hedge funds and commodities including gold.
The Future Fund says it has started to invest in line with its new mandate asked of it by Jim Chalmers last year – to support “national priorities”. This resulted in bigger investment in CDC, which develops and operates data centres. The Future Fund has also made investments into additional infrastructure, including a 10 per cent stake in Transgrid, which is the largest electricity transmission operator, as well as new bets on housing.
Arndt remains cautious about the near term outlook for the US economy and has been diversifying investments into other regions, including Germany.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout