ANZ looking at possible bid for regional lender ME Bank

The Shayne Elliott-headed ANZ has been working on a possible bid for regional lender ME Bank.

Up for grabs: ME Bank.

The Shayne Elliott-headed ANZ has been working on a possible bid for regional lender ME Bank, in a move that is set to test competition rules.

The development is understood to have dismayed smaller lenders that are concerned that the nation’s fourth-biggest bank will be “running hard” at ME.

Owned by industry super funds, ME Bank has had a for-sale sign up for months, but a sale to a big bank will raise questions for Josh Frydenberg and the competition regulator.

First, such an outcome would perpetuate the big bank dominance of retail banking, and second, the very playing field on which the fight for ME Bank takes place itself favours the big four over other bidders.

ME Bank has a $15.6bn mortgage book and $19.6bn in deposits. The lender does not operate a branch network, selling loans ­online and through mortgage ­brokers.

Lining up against ANZ are understood to be two regional banks, Bendigo and Adelaide and Bank of Queensland, and a private equity consortium led by former Tyro chief executive, Gerd Schenkel.

ME Bank boasts that it is the bank built and supported by industry super funds, a purely digital bank in order to deliver lower fees, higher returns and 24/7 banking. It is owned by 26 industry super funds and AustralianSuper, HESTA, Cbus and UniSuper ­effectively control the register.

ANZ chief executive Shayne Elliott.

However, as it turns out, running a bank is not that easy. ME has not paid a dividend for well over a decade. Regulatory requirements have been increasing and mid-last year, management found itself caught up in backlash against its decision on restricting mortgage redraws for customers.

Greg Combet, chairman of Industry Super Australia, which represents 15 industry super funds, was on the ME Bank board until February last year. Combet is advising ME on the sale, along with investment bank Macquarie.

It is possible that ME Bank was shopped to both Melbourne-based big banks ANZ and NAB, which are weaker on the retail side than Commonwealth Bank and Westpac, but the interest from ANZ was peaked by outgoing chief financial officer Michelle Jablko, who is close to ME Bank chairman Jim Evans and made the connection.

Jablko, a former investment banker, is shifting to a new role as chief financial officer at Transurban, but for her ANZ boss Elliott, the pressure is rising to claw back a significant loss of market share in household deposits and mort­gages. Buying ME Bank would deliver an instant solution.

Where the regional banks are challenged is on price. ME’s book value sits at about $1.25bn and both would need to go to the market and raise funds for a takeover.

In its favour, ANZ has a stronger credit rating, at AA, but it has even more firepower, thanks to the federal government’s implied guarantee of its wholesale debts, which gives the bank another two notches in rating advantage over the regionals, lowering the cost of funding an acquisition.

The whole idea of selling out to a big bank is said to have triggered a hot debate within the ME board. Ideologically, the union-backed industry super fund movement has been bitterly opposed to the big banks. ANZ might offer the highest price, but would the outcome be tougher for industry super fund members who might see their deposits squeezed? And what risk to ongoing jobs at ME Bank, to the brand and culture?

A sale to ANZ is also a test for regulators the ACCC and APRA. After the global financial crisis, the ACCC gave a green light to the takeovers of St George by Westpac and Bankwest by Commonwealth Bank, both of which were subsequently criticised as missed opportunities to increase competition.

Moreover, the great neobank experiment to bring competition to the big four is teetering. In banking at least, COVID-19 makes the strong stronger. Last week NAB announced it would take over fintech 86 400, only weeks after neobank Xinja wound up in December.

Over the weekend, the ACCC launched an informal review into NAB’s $220m swoop on 86 400, to assess whether the move would be a brake on “future competition” for the big four banks. If there are two regional banks showing serious interest in ME Bank, this will give ACCC chief Rod Sims something to think about.

Finally, there is the Treasurer, who himself has a right to veto the deal. The government has championed the arrival of open banking and a new era of competition for bank customers.

The big four banks have come a long way since the horrors of the Hayne royal commission. They are now part of Team Australia and there is no doubt the RBA’s term funding facility during the pandemic has also helped all banks. But the optics of another big bank takeover are not great, particularly given the implicit government support in its guarantee, which favours the majors.