ANZ boss Shayne Elliott and the truth about the state of banking

ANZ CEO Shayne Elliott. Picture Kym Smith

Roughly half of ANZ’s head office staff of 2100 people are engaged in the remediation program to make good past snafus underlying the extraordinary cost of the errors on the banks.

ANZ has paid out around $1.6bn so far and chief Shayne Elliott notes the process is important for the bank both because it is the right thing to do and will also help going forward.

The impact on profits is shown by the fact that Australia now only accounts for 55 per cent of bank profits, down from 70 per cent five years ago, with New Zealand and Asia contributing the rest.

That explains why only 70 per cent of the 80c a share in second-half dividends will be franked.

Bunkering down

Combined with lower interest rates and slow economic growth, ANZ’s Elliott is braced for a period of bunkering down, trying to get the bank up and running again.

Investment spending is up 17 per cent to $1.4bn, but the bulk of this will go to systems changes, including process improvements and better payments mechanisms.

In other words, the bank is still getting its house in order and growth is not really on the horizon.

Just as well bad debt charges on the mortgage book are running at half “normal” levels, because on just about every other metric, the bank is suffering.

Cost of capital is now around 8.5 per cent and the bank’s return on equity stands at 10.9 per cent, which is above its European peers, but Elliott said the target going forward would be in the low teen levels, a far cry from the high teens levels of a few years back.

Banking in Australia is changing, and while the big four control the market due in large part to their own incompetence, combined with economic reality, these are not the returns they have come to enjoy.

ANZ has around 14 per cent of the home loan market, of which over half comes from mortgage brokers and only 6 or 7 per cent is sourced to the bank’s proprietary network.

Elliott said customers prefer to use brokers because they make it easier, which says about all you need to know about the state of banking at the moment.