Four pillars psyche stopped ANZ-NAB merger: Mike Smith

Mike Smith says the psyche that considers the four pillars policy sacrosanct was a barrier to ANZ’s merger with NAB.

Former ANZ CEO Mike Smith. Picture: Aaron Francis

A “political psyche” in Australia that considers the four pillars policy to be sacrosanct was the insurmountable barrier to a 2008 mega-merger between ANZ and National Australia Bank, then-ANZ boss Mike Smith has said.

Speaking publicly for the first time about a secret deal that would have transformed the industry, Mr Smith told The Australian that the synergy benefits were “massive”, with the enlarged institution controlling most of the institutional and business banking segments.

“But there’s something in the political psyche in Australia that considers four pillars to be very, very important, on both sides of politics, and that’s why it never worked,” Mr Smith said.

“I’ve never been a great believer in four pillars, three pillars or 18 pillars, but there were people I imagined wouldn’t be too worried about (a NAB deal) who actually believed four pillars was part of the strength of the banking system here.

“Maybe they’re right, I’m prepared to be dissuaded, but I still fundamentally think that the principle of having four, five, six or whatever number of pillars is crazy. You should just allow it to work out.”

The proposed merger with NAB deal in the first half of 2008 was one of two big domestic deals that slipped through ANZ’s grasp under Mr Smith’s tenure, the other being Suncorp.

The latter fell over after Suncorp was effectively saved by the Rudd government’s implementation of the wholesale funding and deposit guarantees, which reopened funding lines for the distressed bancassurer.

There have been suggestions that a Suncorp deal was so close that press releases were drawn up, ready for a formal announcement.

Asked if that was true, Mr Smith said: “Mmm, it was very close. But these things happen.”

Suncorp, he said, was opportunistic, “like all acquisitions have to be, really”.

NAB was conceived in a similar environment, with the board of the Melbourne bank casting around for a successor to then-CEO John Stewart and ANZ in a similar position with the chairman’s role held by Charles Goode.

The plan was that Mr Smith would be CEO of the merged group and NAB chair Michael Chaney would keep his post.

“So it was serendipitous,” Mr Smith said. “It was worth a try — that type of thing sometimes works out.”

While the merger talks held various project names, they were privately dubbed by some participants as “two stumps” — a reference to the huge disparity in size that had emerged between the two Sydney mortgage banks, on the one hand, and ANZ and NAB on the other.

The following year, in 2009, Mr Smith started referring to Commonwealth Bank and Westpac as pillars and the Melbourne banks as stumps.

To a select few, the term had a broader meaning.

Mr Smith agreed that the competition implications would have been scrutinised very closely.

“But you could argue it would have made the industry more competitive because it would have been more efficient (due to the merger synergies),” he said.

“With the financial crisis at the time, you can only do these things at a time of crisis; you can’t do them when things are going swimmingly.”

The deal, revealed in The Australian in 2010, was effectively killed in June 2008, when then-treasurer Wayne Swan released a statement — without any apparent trigger — that restated Labor’s support for the four pillars policy.

“The government considers that Australia is best served by a stable banking system that can continue to draw on the strength and risk management skills of four major banks, rather than a lesser number,” Mr Swan said.