ANZ Banking Group chief executive Shayne Elliott said he’s relieved the bank is finally in a position to grow and the $4.9 billion deal to buy Suncorp Bank, if approved by regulators, would be a turning point for him as chief executive.
After spending his first seven years reshaping the bank through divestments, investing in new technology and enforcing cultural change, Mr Elliott said he was “excited” about the new growth era.
“One of my failings was people thought that [simplification] was the bank’s whole strategy. This feels uplifting. My inbox today is full of emails from staff at both ANZ and Suncorp, with people saying this feels like a positive step forward,” Mr Elliott told The Australian Financial Review, as the bank prepared a $3.5 billion capital raising to fund the deal.
ANZ, which also reported expanding margins for the third quarter on the back of official interest rate rises, is confident in the economic outlook, despite questions from investors around the timing of the deal as the housing market sinks and fears around bad debts rise.
“From our perspective this is absolutely the right time,” Mr Elliott said. “Where we sit and what we see in our business and the broad reach of our customers today, actually we are very well-positioned... Yes, there are going to be some challenges, but this is actually a time to deal forward.”
While ANZ formally withdrew from discussions with private equity group KKR to buy small business accounting software platform MYOB on Monday, Mr Elliott said there would be more opportunities for growth, both organic and otherwise.
The offer comes after Suncorp rejected an acquisition proposal from ANZ in October 2008, after Commonwealth Bank moved on Suncorp and Westpac acquired St George Bank, also in 2008.
Since then, major banks have built up capital levels after the financial system inquiry, faced a royal commission, and battled through the pandemic to emerge with strong balance sheets and record low levels of credit stress.
Analysts questioned the $680 million in integration costs flagged as part of the deal. But Mr Elliott said the number represented the “worst case”, under which ANZ would have to build entirely new services to support the provision of services like payroll and human resources to Suncorp’s bank.
But “perhaps we’ll be able to move them onto ANZ’s payroll faster than we expected,” he said.
He stressed the bulk of the hefty costs associated with the acquisition are tied to the possibility of having to rebuild support services and not to integrating the technology with ANZ Plus. But ANZ hopes it can bring Suncorp’s banking customers onto its new technology stack once that project is completed.
ANZ would look to the success of its business across the Tasman in integrating National Bank of New Zealand about a decade ago, but plans to move faster on deciding how to handle the Suncorp brand. ANZ bought National Bank in 2003, but kept a multi-brand strategy for nearly a decade.
“We’re going to do exactly what it takes to do the same thing here,” Mr Elliott said.
In 2011, ANZ eventually decided to migrate onto National Bank’s core banking platform and the brands were merged at the same time, as ANZ’s sponsorship of the Rugby World Cup saw its “blue” brand rise to favour in New Zealand.
Mr Elliott said ANZ was yet to decide whether it would attempt “to paint Queensland blue” by rebranding Suncorp. It committed to keeping it as a standalone business for at least three years and has licensed the Suncorp brand for up to seven years.
Jarden analyst Carlos Cacho said ANZ’s acquisition of Suncorp Bank would help restore market share ceded over the last few years, with Suncorp Bank’s 2.3 per cent mortgage market share essentially restoring ANZ to its position in October 2018. He pointed out the cost savings would not materialise for five years.
“While this increased scale should be positive, the lack of cost synergies before calendar year 2027 mean it will likely take some time before the benefits are seen,” Mr Cacho said.
“Importantly, the expected cost savings are likely to also be dependent on Queensland regulatory change.”
Barrenjoey analyst Jonathan Mott said around 75 per cent of Suncorp’s customers are originated through the broker channel, questioning how much business would stick with ANZ after the acquisition.
Mr Elliott said while the high proportion of broker originations was not unique to Suncorp and a factor across most banks of a similar size, it would factor into its decision on whether to retain a separate brand.
“If we were to retain a separate brand, it would be precisely for those reasons there. But even with a second brand it will all be on one technology stack,” he said.
“Suncorp is ranked number two in home loan satisfaction, it has a very high net promoter score, so we’ve got some really good things to work with to increase its origination.”
The Finance Brokers Association of Australia joined the throng of opposition to the deal, urging governments to do all they can to make sure “competition stays alive and well”.
“It’s disappointing to see the much-needed competition in the banking sector being reduced, after Volt Bank not being able to raise the capital it needed, 86 400 being basically taken over by NAB, and now Suncorp potentially being absorbed by ANZ,” said FBAA managing director Peter White.
“The major banks are looking like once again ruling the roost; however, we need competition in the marketplace and not monopolisation, especially by major banks.
“If we go back to the ’80s when there was no competition, interest rate margins above cost of funds were two to three times what they are now. This would disadvantage consumers if it were to happen again, particularly at a time when costs of funds are rising globally.”
ANZ shares were halted from trading ahead of its capital raising but shares in Westpac, Commonwealth Bank and National Australia Bank all rallied in a down market, after ANZ released a better than expected third quarter trading update.
ANZ’s net interest margins expanded on the back of higher interest rates in New Zealand and chief financial officer Farhan Faruqui flagged the impact of the Reserve Bank of Australia’s recent interest rate rises would be felt in the full-year result later this year, despite fears that competitive pressures and funding costs might eat into margins.
Mr Cacho said ANZ’s third quarter trading update was better than expected, with lower-than-expected bad and doubtful debts and faster than expected improvement in margins to drive upgrades to 2022 and 2023 earnings.
“Importantly, the better-than-expected margin improvement suggests upside to margins across the sector as the benefits of rising rates on low-cost deposits flow through faster than expected,” Mr Cacho said.
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