Magellan hasn’t seen the end of the outflows – particularly across institutional mandates – after another tough June quarter where another $5.2bn in total funds flew out the door.
George, the former deputy chief investment officer of the Future Fund, has two aims.
The first and most pressing is to reassure institutional investors to stick with Magellan in the hyper-competitive global funds market. Then the medium-term task is to turn the tide with retail investors who were won over by Magellan co-founder Hamish Douglass. The clock is already ticking on the retail front, with well-regarded head of distribution Frank Casarotti set to leave at the end of next year.
George knows the Future Fund investment experience brings gravitas but the mandates are sticky, with the one investor – the Commonwealth government – always patient. More broadly, George will need to confront the right-sizing of Magellan, with the much-diminished fund generating less revenue than when it was twice the size and had fuller fees.
With Douglass out of the frame for now on personal leave, Magellan is rightly keen to roll out the talent overseeing the funds. Douglass’s once-prized annual letter is now jointly written by Magellan’s global strategists Arvid Streimann and Nikki Thomas.
They say Magellan’s global funds are taking an even more cautious footing, holding a higher level of cash than usual. There are real risks of recessionary breakout as global central banks attempt to slow supply-side inflation, “with a tool that only reduces demand-led price increases”.
“Signs have already emerged that tighter monetary policies in the major economies (except Japan) are dampening demand as intended, but they are yet to slow inflation,” they say in Magellan’s annual letter.
For equity markets, the dominant driver of returns “is likely shifting from interest rates to earnings; in particular, downgrades to earnings expectations”.
“This is a natural sequence when higher rates slow economies,” they conclude.
Douglass, Magellan’s biggest shareholder, last month left full-time employment at Magellan but will return as a consultant for investor sessions from October.
Bendigo’s fifth pillar fades
The wheel has turned full circle, with Bendigo Bank chief executive Marnie Baker confirming the regional lender’s interest in pursuing Suncorp’s banking arm, in a bid to deliver the “fifth pillar” in Australian banking.
Suncorp under previous chief executive Michael Cameron approached Bendigo as recently as 2018, with a plan to merge his Queensland bank with the Victorian regional. The plan was complicated and had only lukewarm support from Suncorp’s board for a merger of equals.
It is understood the informal proposal didn’t get past Bendigo’s management. Cameron later left Suncorp unexpectedly in 2019.
Now Bendigo will be considering its own submission to the competition regulator’s upcoming review of ANZ’s Suncorp buyout, a deal that means almost all the country’s retail banking assets will be controlled from Docklands or Darling Harbour.
Baker says the proposed $4.9bn acquisition of Suncorp “further entrenches Australia’s banking oligopoly”.
It’s a reversal of 2007 when Bendigo faced buyout talks with another northern-based lender, this time Bank of Queensland, to build a fifth pillar. The then share and cash offer valued Bendigo at $2.5bn, less than half today’s $5.5bn market capitalisation. Bendigo ultimately rejected the overtures for having too much uncertainty. However, the firm thinking inside the Bendigo boardroom at the time was they wanted to use the Victorian regional bank as a basis for national expansion, using the momentum from the Community Bank brand.
Indeed, two months after rejecting the BOQ approach, Bendigo launched a $1.9bn friendly buyout of another regional, Bank of Adelaide.
This bulked up Bendigo just enough to prevent a renewed takeover bid from a hungry BOQ.
Bendigo’s Baker on Tuesday confirmed The Australian’s report that Suncorp’s board refused to engage on an alternative takeover offer in recent months.
“Suncorp avoided engagement with us despite repeated approaches, instead announcing a transaction with a big four bank that further entrenches Australia’s banking oligopoly,” Baker says. “We are firmly of the view that constructive discussions with Suncorp regarding a merger of Suncorp Bank with Bendigo and Adelaide Bank would deliver enhanced competition, provide broader community benefit and deliver attractive outcomes for shareholders and customers alike,” she says.
It is understood that Bendigo request for a chairman-to-chairman was declined by Suncorp in recent weeks. This coincided with the Suncorp-ANZ talks hitting the final stage. While Bendigo and its bankers to needed more financial information about Suncorp’s books to begin a process of price discovery, the regional Victorian bank was confident of developing an offer that would deliver an immediate earnings uplift and provide a competitive boost. It understood Suncorp’s board saw less execution risk with ANZ.
Investors are also asking questions of Suncorp. On Tuesday JPMorgan analysts said the $4.9bn price tag offered by ANZ suggested “a lack of large takeover premium” for a high-quality regional banking franchise.
Suncorp’s CEO Steve Johnston this week declined to comment on whether a rival offer was on the cards, saying he didn’t want to discuss the internals of the process.
JPMorgan also questioned the “limited strategic merit of the deal” for ANZ, saying the optics of the Suncorp Bank buyout “are by no means perfect”.
It is only in the long term that the deal will start paying off, when ANZ expects to start securing more than $260m in annualised savings.
Competition test
While ANZ has been careful not to front-run a decision from the Australian Competition & Consumer Commission over the deal, the relatively small Queensland market share for both ANZ (compared to the big rivals) and Suncorp and the fact that the Brisbane-bank wasn’t regarded as a price leader has given ANZ boss Shayne Elliott confidence that he can secure regulatory support.
On a national test ANZ will comfortably sail through. The merger marginally puts ANZ ahead of currently third-placed National Australia Bank in terms of housing loans, but keeps it at fourth place in terms of household deposits and small to mid-sized business lending.
Westpac’s blockbuster move on St George Bank, arguably a bigger impact on competition – particularly in NSW – was waved through by the competition regulator in August 2008 without conditions. There the ACCC set in motion the basis for future rulings that banking should be measured on national markets rather than state-based markets.
“There is strong evidence to suggest that price competition in all retail banking product markets is national,” the ACCC said in its Westpac decision. “Market inquiries indicated that most financial institutions manufacture, distribute, market and price products on a national basis.”
While internet and mobile banking was still in the growth stage in 2008, the ACCC noted the change in modes of digital distribution for banking products and the bigger role played by mortgage brokers meant that customers could have a relationship with their bank without visiting a branch.
A bigger problem for ANZ remains convincing investors it has the right stuff to execute a merger while playing much needed catch-up in its digital overhaul.
johnstone@theaustralian.com.au
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From day one the pressure is already piling up on David George, the former Future Fund executive who this week started as the new chief of the battered Magellan Financial Group.