ANZ is on a deliberate, narrower path under the leadership of CEO Shayne Elliott to become a “simpler, better bank”. But what does this mean for the group’s institutional business?
All Australian banks are under pressure to change following the royal commission. But among them, ANZ stands out as a bank with a clear strategy to effectively become a smaller organisation than it was in the past. While NAB has announced job cuts, Westpac is shaking up its wealth business and CBA is looking to demerge some of its divisions, no other bank has been so consistent in its rhetoric about simplification and downsizing than ANZ.
When he addressed shareholders at the bank’s AGM in Perth late last year, CEO Shayne Elliott claimed the bank has changed its business more in the last three years than in any time since the merger in 1951 that created the ANZ we know today.
Since 2015, ANZ has announced the sale and exit of more than 20 businesses and reduced risk-weighted assets in its institutional business by $44 billion. It has cut the number of retail products in Australia by more than a third.
“This year alone, we have sold our joint-venture bank in Cambodia and our retail and commercial business in Papua New Guinea,” Mr Elliott said.
“We also completed the sale of our Asian retail and commercial businesses, our life insurance business in New Zealand and our aligned dealer groups here in Australia.
“For customers, we simplified our retail fee structure, removing a myriad of fees in our core retail businesses, including the charge for using other banks’ ATMs.”
While ANZ will clearly be doing much less than it has in previous years, the CEO stressed that its simplification strategy is not a case of trying to “shrink to greatness”.
“The reality is a simpler bank is just easier to run, lower cost, better for customers and less risky for shareholders,” he said.
Non-core divestments are clearly a major part of ANZ’s simplification process, but so is a realignment of its management, particularly in a world where governance and accountability are under the microscope.
When Mr Elliott announced a new management structure in February, he noted the transformation of the Australia business to succeed in the new operating environment is both “the biggest challenge and opportunity” for ANZ.
“It was clear that retaining a single governance and accountability structure is no longer suitable given the size and complexity of the challenges facing domestic banking in Australia,” he said.
“We have made significant progress in recent years, particularly with the roll out of agile work methods; however, we know there are significant opportunities available for the bank that best responds to the changing needs of retail and business customers in Australia.”
As a result, group executives Mark Hand and Maile Carnegie now share responsibility for the financial performance of ANZ’s business in Australia.
ANZ’s transformation is widespread and thorough. The bank’s strategy precedes the royal commission and is clearly the vision of its CEO, who has a very different outlook to his predecessor, Mike Smith.
Smith’s ‘super regional’ strategy forged ahead under his leadership against all odds. In many ways, the different directions that he and Elliott have taken says as much about their respective backgrounds and corporate histories as it does about the changing nature of the broader financial environment.
Mike Smith’s perspective was always a global one. Prior to being appointed CEO of ANZ, he led HSBC’s operations in Asia and spent time running banks in South America.
Elliott, on the other hand, is a numbers man, having spent over three years as CFO of ANZ under Smith. While he has also spent time in Hong Kong and other countries as a banker, his vision is far more inward-looking and domestic than Smith’s was.
Some banks like to keep their institutional businesses at arm’s length from the bread-and-butter retail and business units, but ANZ’s simplification strategy is also transforming its institutional division. The man calling the shots also comes from that side; Elliott spent seven years at Citigroup and three years as the global MD of ANZ’s institutional bank prior to becoming CFO.
According to Mark Whelan, ANZ’s group executive institutional, the sale of the bank’s retail and wealth businesses in Asia has left the institutional arm well-positioned for growth.
“Customers are recognising we have an offering that’s different to our competitors. We’re the leading bank in loan syndications in Asia-Pacific excluding Japan, and in transaction banking we have won more than 25 major multijurisdictional mandates in the last 12 months,” he said.
The interesting story behind ANZ institutional is that it appears to be gaining greater traction in Asia since it started unwinding the super-regional strategy and focusing on simplification. It was named Asian Bank of the Year from IFR Asia in 2018, proof, Mr Whelan says, that the bank is “alive and well” in the region.
It seems a ‘customer first’ philosophy has also been adopted by the institutional bank; after analysing its customer base it found valuable relationships with clients who dealt with the bank in Australia, New Zealand and a number of Asian countries.
“The consequence of that analysis was we made the decision to exit almost two-thirds of our customer base so we could better concentrate on 8,000 customers in key growth areas across the region,” Mr Whelan said.
“Those clients are looking for industry expertise from ANZ’s institutional bankers and are in priority sectors where the bank is seeing sectoral growth: financial services, resources, agriculture, property, technology and government.”
ANZ has clearly turned a corner in Asia, but the approach is different this time. Where Mike Smith envisioned a world where ANZ’s retail presence would be scattered through the region, Elliott has seen the value in pushing the group’s institutional bank into Asia and targeting key industries and strengthening relationships with valuable clients.