ANZ completes simplification of Wealth Australia

ANZ today announced it has completed the simplification of its Wealth Australia division with the sale of its life insurance business to Zurich Financial Services Australia. The sale is comprised of two transactions with total proceeds of $2.85 billion, inclusive of $1 billion of upfront reinsurance commission from Zurich.

This follows the sale of its OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Limited (IOOF) in October for $975 million. Total proceeds from the simplification of Wealth Australia is $3.83 billion.

Following completion, Zurich will be Australia’s largest retail life insurer as measured by in-force premiums with more than 1.5 million customers, while IOOF will have a top-five superannuation platform with the second largest aligned financial advice network.

Here is an interview with CEO Shayne Elliott and Andrew Cornell.

Life Insurance Transaction Scope:

  • 100% of One Path Life Australia Holdings Pty Limited (OPL)
  • As at 30 September 2017, total life in-force premiums were $1.7bn
  • Transaction does not include New Zealand and ANZ will retain Lenders Mortgage Insurance, General Insurance distribution and Financial Planning

Life Insurance Transaction Summary:

  • Total proceeds of $2.85 billion include $1 billion of upfront reinsurance commission from Zurich to ANZ and $1.85 billion for 100% of the life business
  • Annual profit of business is $189 million on a 2017 pro forma cash NPAT basis
  • Equates to a 2017 Price/Embedded Value of 1.0×3, 15.1x 2017 Price/Earnings on a pro forma cash NPAT basis
  • Carrying value of $3.38 billion. Estimated accounting loss on sale of ~$520 million post separation and transaction costs of ~$75 million post-tax and release of available for sale reserve
  • Expected to increase ANZ’s consolidated CET1 capital ratio by a total of ~$2.5 billion or ~65 basis points4 (~25 basis points upon completion of the reinsurance arrangement and a further ~40 basis points on completion)
  • The transaction would be broadly EPS and ROE neutral if capital released is returned to shareholders

Combined Transaction Summary:

  • Total proceeds of $3.83 billion for combined sales
  • Equates to 16.8x Price/Earnings on a pro forma cash NPAT basis
  • Combined sales to increase ANZ’s consolidated CET1 capital ratio by ~80 basis points

Capital released following reinsurance and completion of the life insurance sale is expected to increase ANZ’s consolidated CET1 capital ratio by ~65 basis points and largely be surplus to ANZ’s unquestionably strong requirements.

The sale is another step in ANZ’s strategy to create a simpler, better balanced bank focussed on retail and business banking in Australia and New Zealand, and Institutional Banking supporting client trade and capital flows across the region.

As part of the agreement, ANZ and Zurich will enter into a 20–year strategic alliance to offer life insurance solutions through ANZ’s distribution channels.

With a long history in Australia and a presence in more than 210 countries and territories, Zurich is a highly regarded insurance company with global capability in providing life insurance solutions to more than 60 million customers in partnership with 70 banks in 17 countries, including Santander, Citibank, HSBC, and ING.

ANZ Group Executive Wealth Australia Alexis George said: “From the outset we’ve been focussed on partnering with a high-quality organisation culturally aligned to ANZ and we’re pleased we will be able to provide our customers with access to wealth products from one of the world’s leading and most respected global insurers.”

“Zurich’s experience in working with banks around the world to provide insurance solutions, combined with its commitment to innovation and strong presence in Australia is a good outcome for our customers, shareholders and distribution partners.

“Partnering with Zurich is the best outcome for ANZ customers given it will become Australia’s leading life insurer with the scale to invest in product and digital innovation.

“This transaction will complete the simplification of ANZ’s Australian wealth business, however we will continue to work hard to minimise any disruption to our customers during the transition,” said Ms George said.

There are no changes to any current insurance policies as a result of today’s announcement, including general insurance products provided via QBE.

ANZ expects completion to occur in late 2018 together with the recently announced sale to IOOF of the Group’s Pensions & Investments and Aligned Dealer Group businesses. The transaction, including the reinsurance, remains subject to regulatory approval.

ANZ launches Garmin Pay

ANZ today announced its customers could now use Garmin Pay to make purchases on the go after the bank signed a partnership with the global wearables brand.

From today, ANZ’s Australian customers can load their eligible Visa debit or credit cards through the Garmin app and start using their wearable device to make smooth and secure purchases anywhere contactless payments are accepted.

Commenting on the new partnership, ANZ Managing Director Products Bob Belan said: “At ANZ we are determined to bring our customers new payment experiences so they can pay the way they want to.

“We’re pleased to be partnering with Garmin to bring our customers a payment option with one of the world’s leading wearable device companies that has a proven track record in innovation.

“The wearables market continues to grow with more than 26 million devices shipped worldwide in the third quarter of 2017 alone, so we know our customers will appreciate the ability to pay on their Garmin device.”

Customers will need a Garmin account and one of its vívoactive 3 devices to pair with their Apple or Android smartphone so they can use the payment service. Once they have set up the device with their card, customers can simply tap their device at a contactless payment terminal to make a purchase.

ANZ Job Ads Rose in November

In seasonally adjusted terms, ANZ Job Advertisements rose 1.5% in November following a 1.5% increase in the prior month. On an annual basis Job Advertisements are up 12.1% a tick down from the 12.5% y/y pace last month.

In trend terms, job ads were up 0.7% m/m in November. There has been a slight slowdown in the m/m trend which averaged 1.16% and 0.94% m/m over Q2 and Q3 respectively.

Another steady rise in ANZ Job Advertisements in November along with other leading indicators suggests a positive outlook for the labour market, particularly given the solid prospects for economic growth. Labour market performance through 2017 has been robust, with employment concentrated in full time jobs and picking up across all states.

That said, the improvement in labour market conditions has not yet translated into higher wage growth, as indicated in the weaker-than-expected Q3 number. Clearly, a further reduction in labour market spare capacity is required for a sustained increase in wage growth. On this front, it is encouraging to see business surveys report that firms are having an increasingly difficult time finding suitable labour. In the past this has resulted in firms bidding up wages. Indeed the RBA, through its liaison program, has already noted some evidence of this occurring in small pockets. As the unemployment rate grinds down further over the coming year, we expect this to become more widespread


People with disability at risk of financial and digital exclusion – ANZ

People living with disability are at particular risk of exploitation and financial abuse, and financial education may be a key to addressing the issue, a new ANZ study released today has found.

The ANZ-commissioned 2017 MoneyMinded Impact Report from RMIT University is one of the first in Australia to explore the issues related to financial wellbeing for people with disability and their carers.

The report found people with disability may miss out on opportunities to develop their financial capability and wellbeing because of lower levels of digital inclusion, lower participation rates in education and the workforce, and lower levels of socialisation.

It also highlighted a concern that people living with disability may face additional financial challenges under the National Insurance Disability Scheme (NDIS), including a potentially higher risk of financial exploitation by unscrupulous service providers.

Commenting on the findings in the report, ANZ Chief Executive Officer Shayne Elliott said: “This is an important study that helps us understand the nature and scale of the challenges some people with disability face in our community.

“Through community programs like MoneyMinded we can help provide access to financial education so people with disability and their carers can make better financial decisions and have confidence with everyday transactions that many of us take for granted

“We will continue to invest in improving the financial literacy of communities in which we operate; in 2017 we’re happy to have reached more than 76,000 people in Australia, New Zealand, Asia and the Pacific with MoneyMinded,” Mr Elliott said.

ANZ also supported a companion study from RMIT University and Autism CRC that provided additional focus on issues for autistic individuals who account for 29 per cent of current NDIS clients.

Principal Research Fellow at RMIT Professor Roslyn Russell said the financial capabilities and education needs of people with disability were varied and diverse, depending on the nature and extent of their disability.

“Those with cognitive and intellectual difficulties may have more complex challenges in using and understanding money. But everyone, regardless of their ability, should be given support to learn and participate in financial decisions that are appropriate to their goals,” Professor Russell said.

CEO of Autism CRC Andrew Davis said the companion report built on understanding of the financial experiences, attitudes, behaviours and needs of autistic adults, about which there is currently little knowledge.

“We need to have a stronger understanding of the financial barriers faced by autistic individuals, including how neurodiversity affects their financial wellbeing,” said Mr Davis.

“What we do know is that if autistic individuals are not given the opportunity to develop their financial skills and confidence, they are less likely to be able to live as independent consumers and develop the capability to identify financial opportunities and risks.”


ASIC accepts enforceable undertakings from ANZ and NAB to address conduct relating to BBSW

ASIC says Australia and New Zealand Banking Group (ANZ) and National Australia Bank (NAB) have today entered into enforceable undertakings (EUs) with ASIC in relation to each bank’s bank bill trading business and their participation in the setting of the Bank Bill Swap Rate (BBSW), a key Australian benchmark and reference interest rate.

On 10 November 2017, the Federal Court made declarations that each of ANZ and NAB had attempted to engage in unconscionable conduct in connection with the supply of financial services in attempting to seek to change where BBSW set on certain dates (in respect of ANZ, on 10 occasions in the period 9 March 2010 to 25 May 2012, and in respect of NAB, on 12 occasions in the period 8 June 2010 to 24 December 2012). The Court also declared that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly.

The Federal Court imposed pecuniary penalties of $10 million each on ANZ and NAB for the attempts to engage in unconscionable conduct in respect of the setting of BBSW. The Court also noted that each of ANZ and NAB will give EUs to ASIC which provides for them to take certain steps and to pay $20 million to be applied to the benefit of the community, and that each will pay $20 million towards ASIC’s investigation and other costs.


ASIC commenced legal proceedings in the Federal Court against ANZ on 4 March 2016 (refer: 16-060MR) and against NAB on 7 June 2016 (refer: 16-183MR). The EUs form part of an agreed resolution to those proceedings.

On 16 November 2017 Jagot J of the Federal Court published her decision in both the ANZ and NAB proceedings ([2017] FCA 1338).

On 5 April 2016, ASIC commenced legal proceedings in the Federal Court against the Westpac Banking Corporation (Westpac) (refer: 16-110MR). These proceedings are ongoing.

ASIC has previously accepted enforceable undertakings relating to BBSW from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totaling $3.6 million to fund independent financial literacy projects in Australia.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

The Government has recently introduced legislation to implement financial benchmark regulatory reform and ASIC has consulted on proposed financial benchmark rules.

ANZ welcomes decision on SA Bank Tax

ANZ today welcomed the decision of the South Australian Government it would not be proceeding with its planned bank tax.

ANZ Chief Executive Shayne Elliott said: “This is positive decision for all South Australians and a clear sign the State is once again open for business and investment.”

“We look forward to continuing to invest in our South Australian business with renewed certainty, which remains an important part of our business here in Australia,” Mr Elliott said.

ANZ adds eftpos cards to Android Pay

ANZ today announced the launch of Android Pay for eftpos cardholders, which means all its Australian customers can now easily make secure payments on their smartphone.

From today ANZ’s eftpos cardholders can access Android Pay to easily make secure purchases on their compatible device wherever contactless payments are accepted.

ANZ continues to lead the banking sector with its mobile payments services by delivering more options for customers than any other major Australian bank.

Commenting on the new mobile payment option, ANZ Managing Director Products Bob Belan said: “ANZ customers now have access to a complete suite of digital payment options regardless of which card or device they use.

“We’re committed to maintaining our leadership position in offering customers new, simple and convenient payment experiences so we’re pleased to provide our eftpos cardholders the option to now make purchases with their Android mobile device.”

To use their eftpos card on an Android device, cardholders simply need to download Android Pay from the Google Play Store and follow the prompts.

ANZ Appoints New Lead for New Business, Emerging Tech and Ventures

ANZ today announced it has appointed Ron Spector as Managing Director, New Business, Emerging Technology and Ventures, reporting to Group Executive Digital Banking Maile Carnegie.

Currently based in San Francisco, Mr Spector is a strategic innovation and venture advisor with more than 27 years’ international experience in financial services, retail and media industries.

In his new role, Mr Spector will have responsibility for developing potential new business opportunities and disruptive technologies as well as investing in emerging growth companies to improve the products and services provided to customers.

Commenting on the appointment, Mrs Carnegie said: “Ron will lead a Group-wide function to accelerate our efforts to make our customers’ lives simpler and find new, innovative opportunities to build a world-class digital bank.

“We’re confident this focus will open new markets for ANZ, while also improving the products and services we provide our customers,” Mrs Carnegie said.

Prior to joining ANZ, Mr Spector was CEO of Circini Innovation in San Francisco, CEO of Conferserv Inc, and Senior Vice President of MediaZone. He was also a founding partner of Macquarie Technology Ventures and was US Head of Technology Investment Banking at Macquarie Group.

Mr Spector holds a Doctor of Jurisprudence from the University of the Pacific and a Bachelor of Arts (Hons) from the University of California.

Mr Spector will be based in Sydney from January 2018.

ANZ Job Ads Up In October

ANZ Job Advertisements rose 1.4% m/m in October, more than reversing the 0.7% decline previously. They now sit 12.5% higher than they did a year ago.

But in trend terms, job ads were up 0.5% m/m in October after a 0.7% rise the previous month. Annual trend growth eased slightly, from 12.4% in September to 12.2%.

ANZ said:

The bounce in ANZ Australian Job Advertisements in October is consistent with elevated business conditions and capacity utilisation. The slight slowing in the month-on-month trend growth since August supports our view that employment growth is likely to moderate a touch after this extraordinary period of strength. We also note that the official employment data appears to overshot the level implied by ANZ Job Advertisements.

Even as the labour market strengthens, with the unemployment rate falling to a four-year low of 5.5% in September, solid growth in nominal wages continues to remain elusive. The experiences of other advanced economies that are at or close to levels of full employment suggest that global factors are keeping nominal wage growth low. Even so, we think it
reasonable to expect some upward pressure on wages as the labour market tightens, given some evidence that sectors experiencing stronger labour demand have stronger growth in average weekly wages. As such, we find the fall in our monthly estimate of underemployment quite encouraging.

We will be closely watching the Q3 Wage Price Index, out next week, for any signs of improvement in underlying conditions, though this may be difficult to discern given the impact of the higher minimum wage.

ANZ FY17 Results – Look Under The Hood!

ANZ today announced a Statutory Profit after tax for the Full Year ended 30 September 2017 of $6.41 billion up 12% and a Cash Profit of $6.94 billion up 18% on the prior comparable period. Half the uplift was related to one-off items. More of the business going forwards will be based on its Australian and New Zealand Retail businesses (a.k.a. mortgage lending!).

ANZ’s Common Equity Tier 1 Capital Ratio was 10.6% up 96 basis points (bps).

Return on Equity increased 159 bps to 11.9% with Cash Earnings per Share up 17% to 237.1 cents.

The Final Dividend is 80 cents per share, fully franked, reflecting a payout ratio of 68% of Cash Profit, moving closer to ANZ’s target fully franked full year payout ratio of 60‐65%.

At one level this is a strong result, as the contribution from asset sales flows into the business, such that Australia and New Zealand which now accounts for 53% of capital, up from 44% two years ago. As a result, they generated strong organic capital growth and the APRA CET1 capital ratio now stands at 10.6%, up from 9.6%, so they already meet APRA’s ‘unquestionably strong’ 2020 capital target. Organic capital generation of 229 bps over the year was over 50% greater than the average (140 bps)
of the past five years.

The Group has a strong funding and liquidity position with the Liquidity Coverage Ratio at 135% and Net Stable Funding Ratio at 114%.

The total provision charge of $1.2 billion equates to a loss rate of 21 bps, a decline of 13 bps over the year. Gross impaired assets over the same period decreased 25% to $2.38 billion with new impaired assets down 11%.

But at another level, the net interest margin is down 8 basis points on last year to 1.99%, with a fall of 2 basis points in 2H, despite the mortgage book repricing and loan switching. The Australian margin fell from 275 basis points in FY16 to 268 basis points in FY17.  There was a 4 basis point impact in 2H17 as a result of the bank levy.

Credit impairments as a percentage of average GLAs down from 0.34% to 0.21% as they de-risk the business (institutional and Asia), but grow the Retail business in Australia and New Zealand, with an emphasis on  owner occupied home lending.

Full time staff fell from 46,554 to 44,896, so the cost base has reduced and is down year on year in absolute terms for the first time in 18 years. Costs rose in Australia by 2.7%.

Australian individual provisions remained at 0.33% of Gross Lending Assets, higher than the 0.22% in New Zealand but significantly lower than Asia retail.

This also exposes them to the risks of a property downturn and higher mortgage defaults. 90-Day defaults overall remained similar to last year, but with a spike in WA and a fall in VIC/TAS. (Excludes non-performing loans).

The Australian home loan portfolio grew by 7% to $265 billion. Investor loans were 32% of flow. 56% of loan flows were originated via brokers, and 51% of the portfolio were broker sourced, up from 49% in FY16. There was a rise in fixed rate lending. The portfolio is now 45% of total group lending and 64% of the Australian lending. 31% of the portfolio are interest only loans, and 27% of flow in September half to date. They say they will meet the APRA target. There was a small rise in loans with an LVR of higher than 95% in the Sept 17 period.

Investment loan delinquencies are rising, whereas they have traditionally be lower than OO loans.

They have tightened underwriting standards, including:

  • The maximum interest only period reduced from 10 years to 5 years for investment lending to align to owner occupier lending
  • Reduced LVR cap of 80% for Interest Only lending
  • Interest only lending no longer available on new Simplicity PLUS loans (owner occupier and investment lending)
  • Minimum default housing expense (rent/board) applied to all borrowers not living in their own home and seeking RILs4 or EMAs5
  • Restrict Owner Occupier and Investment Lending (New Security to ANZ) to Maximum 80% LVR for all apartments within 7 inner city Brisbane postcodes.
  • Restrict Investment Lending (New Security to ANZ) to Maximum 80% LVR for all apartments within 4 inner city Perth postcodes

ANZ’s captive Lenders Mortgage Insurer reported stable loss ratios of 2.4 basis points.

They warn “household debt and savings have both increased, however the ability for households to withstand economic shocks has diminished a little”. “In 2018 we expect the revenue growth environment for banking will continue to be constrained as a result of intense competition and the effect of regulation including a full year of impact of the Australian bank tax.”