Bendigo’s board put costs at heart of new CEO Richard Fennell’s challenge

Incoming CEO Richard Fennell will need to quickly prove he isn’t just another product of the Bendigo culture that has had greater tolerance for costs than the bank’s investors.

New Bendigo Bank chief executive Richard Fennell

The power shake-up at the big regional bank Bendigo comes after chief executive Marnie Baker delivered her blueprint for a digital future during a major strategy update to big investors in Sydney five weeks ago.

Now she is set to exit the bank by the end of next month.

Succession planning by Bendigo’s board was well underway around the same time as Baker was delivering her vision to reduce complexity, and the demands were for management to go much harder on costs.

This has been a perennial challenge for the regional lender, which through decades of acquisitions has been running with unsustainable costs that were becoming ever harder to unwind.

While Baker used the May briefing to showcase her executive team, there was little indication at the time she was preparing to hand over the running of the bank. The bank’s board was looking for a new medium-term direction. Even so, the market was caught off guard, sending Bendigo shares down 1.7 per cent by mid-afternoon, significantly underperforming other listed banks.

Since taking charge of Bendigo six years ago, Baker has spent much of her time confronting the costs – a foundation to fixing the franchise and improving returns.

Part of this involved cutting back a sprawling branch network, something that went against the grain of Bendigo’s community-minded image.

Baker also shut down legacy brands, including the Adelaide Bank mortgage broking business, and is cutting the costly core banking systems from eight to just three now.

She halved the number of IT applications to 328 and promised more to come.

Her aim was for Bendigo to be on a single banking platform within two years.

While there has been several years of investment in tackling costs, shareholders have yet to see a big uplift in returns. These were coming, management has promised, particularly as brands and banking systems were being slashed.

“We have a lot of confidence in the investments that we’re making, that they’re not just about revenue but also about costs,” Baker recently said.

Outgoing Bendigo Bank CEO Marnie Baker. Picture: Jane Dempster/The Australian

In February, the bank posted a cost-to-income ratio of nearly 58 per cent – it was a little over 59 per cent pre-Covid.

Baker had a target of getting it to below 50 per cent within two years. The only real way this was going to come down was to slash headcount, with hundreds of jobs to go from staff numbers now running in excess of 4700.

The issue Bendigo now faces is that as well as investment to tackle legacy costs, it also needs to spend substantial investment to grow in the face of an increasingly competitive market.

This is now the challenge of Bendigo insider and head of retail Richard Fennell, who becomes the bank’s fourth chief executive in the past 25 years. Each of Bendigo’s leaders including Baker, a 35-year veteran, have come from internal candidates.

Others in the running included recently appointed business and agribusiness banking boss Adam Rouse, who ran business banking for Barclays in London. However, Bendigo’s earnings mix is overwhelmingly dominated by retail banking. Newish chief financial officer Andrew Morgan, the former Colonial First State and MLC finance boss, is also well liked by investors.

Fennell joined Bendigo in 2007 from big four accountants PwC, initially as head of strategy for then boss Rob Hunt, and then quickly moved into the chief financial officer role. He has been running the bank’s consumer-facing businesses since August 2018.

Fennell will need to move quickly to prove he isn’t just another product of the Bendigo culture that historically has had a greater tolerance for costs than the bank’s own investor base.

The question is whether he will stick to Baker’s well-communicated strategy aimed at boosting returns through productivity and technology.

Fennell was giving little away on Tuesday, noting that Bendigo was a unique institution that plays an important role in providing consumers with a “compelling alternative” to the majors. To grow over the long term, Bendigo will need more than that.

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Originally published as Bendigo’s board put costs at heart of new CEO Richard Fennell’s challenge