ANZ – Page 13 – Digital Finance Analytics (DFA) Blog

ANZ has little time for robo-advice

ANZ chief executive Shayne Elliott said the bank won’t be embracing robo-advice any time soon. And opportunities are less in Australia for fintechs.

Speaking at a Reuters Newsmaker event in Sydney yesterday, Elliott told attendees that ANZ’s focus moving forward is on becoming the best bank in the world and increasing its competitive advantage – a strategy he doesn’t think robo-advice could contribute to.

“We have looked into robo-advice, and I do think there is a role for it now and in the future. But the question is whether it’s something we could do better than everybody else, and I’m not convinced. We have done a few trials and there’s a lot of exciting stuff there, but I’m not sure it’s anything that would differentiate us,” Elliott said.

“There are a lot of things we could do, but it doesn’t necessarily mean we should do them. I think there are more meaningful things we should invest in right now.”

Elliott did admit that he is concerned about the threat to the traditional banking system posed by fintech. Though, he doesn’t believe the opportunity for fintechs to thrive is as abundant in Australia due to the efficient nature of the market.

“I worry about fintech just as I worry about any kind of competition. But I do think the opportunities are less in Australia for fintech than in other regions, we don’t have the kind of glaring inefficiencies that you see – even in parts of the United States – that make them a much more attractive place for disruption,” Elliott said.

However, Elliott acknowledged the “really good thinking” occurring in fintech and hinted at a potential partnership in the future.

“We do think that there’s an opportunity for us to possibly work with them. You have to understand that we’ve got something of enormous value, which is a lot of customers that trust ANZ,” Elliott said.

Placing a move into robo-advice on the backburner comes as part of the bank’s decision to downsize, with the recent sale of its branch network across five Asian countries to DBS Bank and the potential sale of its wealth business, and is also part of the institution’s strategy for transforming the business’ culture.

Elliott said that the bank’s conglomerate presence in the past caused a failing in terms of visibility across all aspects of the business, saying that the complex structure of the organisation meant there was no way of really knowing what was going on at all times but ANZ is working towards changing that.

“We’ve made a lot of symbolic changes in terms of making us a more humble organisation, in terms of how senior executives behave, how we interact with people and what we talk about…We’re changing that in two ways, having less things to do – less products, less places, less product groups – and making sure that the way we run them is appropriate,” Elliott said.

“We actually want to be smaller, to be better. And we want to do what we’re good at even better. I figure a smaller bank and a simpler bank will be easier to manage.”

ANZ Launches BladePay

ANZ today officially launched its secure payments system for business customers, ANZ BladePay, alongside six point-of-sale vendors who are developing customised applications for the platform.

Developed in partnership with tech innovation firm ThumbzUp, ANZ BladePay is a handheld android-based payment device which is capable of integrating third party applications designed to help businesses run more efficiently and enhance customers’ experience.

ANZ Group Executive, Australia Fred Ohlsson said: “We are routinely told that managing payments is one of the biggest pain points for business owners, yet when we looked at the market we found an opportunity to create a platform that could dramatically change the way our customers do business.

“ANZ BladePay is a fully integrated and innovative solution that will simplify business operations. What really sets ANZ BladePay apart is the software our vendor partners are developing, which is tailored to our customers’ needs. ANZ BladePay is much more than a secure payments solution, its potential is limitless,” Mr Ohlsson said.

Our vendor partners can build applications to include features such as ‘order and pay at table’, split bill and tipping options, ability to email and SMS receipts, and staff shift clock-on functions.

The device will be available to the hospitality industry in March 2017, with it offered to retail and B2B shortly after.

To take advantage of ANZ BladePay, business owners need to be an ANZ merchant customer and use a point-of-sale system provided by one of the banks vendor partners.

Point-of-sale vendors NCR, RedCat, H&L, SureFire, Abacus and Shout for Good have all started developing software for the device. ANZ is actively working with a number of other vendor partners.

ANZ BladePay features:

Android 6.0 Marshmallow operating system

Open architecture platform

5″ high resolution display

Dual Cameras: 8MP rear facing/ 2MP front facing

WiFi and 4G enabled Includes 1/2D barcode scanner

Customised home screen with preferred applications

Micro USB cable for charging

ANZ wealth sale ‘not about capital’

From Investor Daily.

ANZ’s decision to exit product manufacturing is purely strategic and unrelated to the need to raise regulatory capital, says chief executive Shayne Elliott.

Speaking at a Reuters event in Sydney yesterday, ANZ chief executive Shayne Elliott said product manufacturing is “not the model for [ANZ]”.

The comment comes after the bank announced plans to conduct a strategic review of its wealth business, with a sale one possible option.

Mr Elliott was keen to stress that a sale of the entire business, valued at approximately $4.5 billion, was only one option ANZ is considering.

“We haven’t said we’re going to sell. What we’ve said is we’re going to look for ways to release capital from [the business],” he said.

“Ideally we want to partner with somebody who can help go to market. It may include a sale.”

Mr Elliott said ANZ is already “having conversations with people and we’re open to ideas”.

InvestorDaily sister publication IFA reported yesterday that IOOF has confirmed an interest in purchasing ANZ’s wealth business.

An IOOF spokesperson said ANZ’s manufacturing business “presents very attractively and is a strong strategic fit with existing IOOF businesses”, adding IOOF would be “very interested in participating in the sale process”.

But Mr Elliott said any “partnership” would not be about ANZ generating capital.

“We’re not putting a ‘For Sale’ sign on the [wealth business] and saying the highest bidder wins,” he said.

“That is not what we’re doing. In order to do the best job for our customers, we need to partner with somebody who can help us, and has the financial/intellectual wherewithal to keep up with customer demands and to innovate.”

The partner would also need to be “aggressively positioning product in the marketplace”, Mr Elliott said – noting ANZ is “not the person to do that”.

“We want to partner with somebody – and it’s possible that that person may want to buy what we’ve got,” he said.

ACCC takes proceedings against ANZ and Macquarie bank for attempted cartel conduct

The Australian Competition and Consumer Commission says it has today taken proceedings on a consent basis against Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) in relation to alleged attempts to engage in cartel conduct.

Following cooperation by ANZ and Macquarie, the parties have agreed on the following facts to be presented to the Federal Court for its consideration:

a Macquarie trader, together with traders employed by ANZ and a number of other banks, all located in Singapore, communicated via private online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate);

on various dates in 2011, traders employed by ANZ and the Macquarie trader attempted to make arrangements with other banks that particular submitting banks would make high or low submissions to the ABS in relation to the ABS MYR Fixing Rate.

The ACCC alleges that on various dates in 2011, ANZ or Macquarie sought to influence the ABS MYR Fixing Rate published on that day, and thus attempted to contravene the cartel provisions of the Competition and Consumer Act 2010.

“These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” ACCC Chairman Rod Sims said.

“The ACCC recognises the integrity of foreign exchange markets plays a fundamental role in our market economy.”

ANZ has admitted to 10 instances of attempted cartel conduct and Macquarie to eight.Submissions to the Federal Court have been made as follows:

ACCC and ANZ have jointly submitted that ANZ pay a pecuniary penalty in the amount of $9 million and make a contribution to the ACCC’s costs; and

ACCC and Macquarie have jointly submitted that Macquarie pay a pecuniary penalty in the amount of $6 million and make a contribution to the ACCC’s costs.

Ultimately it is for the Court to decide whether penalties in these amounts are appropriate and the ACCC will not make any further comment regarding penalties until the Court makes final orders.

Background

ABS benchmark rates are used as reference rates for settling non-deliverable forward contracts (NDFs). Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts. Banks and other institutions primarily use NDFs for hedging and risk management.The ABS MYR Fixing Rate would ultimately affect NDF settlement payments.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ABS Rules required this be done independently and without reference to other submitting banks.

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however it often initiated discussions between traders.

The ACCC estimates that the annual MYR NDF turnover in Australia in 2011 was approximately $9 to 10 billion. ANZ and Macquarie’s customers included Australian companies.

Australian Job Ads Rise In October – ANZ

According to ANZ, Job advertisements rose 1.0% m/m in October after virtually no change in September. Annual growth in job ads rose to 5.2% from 3.8% in the previous month.

In trend terms, job ads rose 0.4% m/m in October, a touch lower than the 0.5% m/m rise in September. While trend annual growth in job advertisements has slowed – 4.8% y/y compared to 11.4% y/y a year ago – it remains consistent with a gradual improvement in the labour market.

ANZ said “The rise in ANZ job ads is encouraging and points to ongoing improvement in labour market conditions. It is consistent with the moderate pace of economic growth, as well as above average business and consumer sentiment

Overall, our assessment is that the labour market will continue to improve at a gradual pace and the unemployment rate will continue to edge lower, supported by low interest rates and still elevated business conditions.

That said, excess capacity in the labour market is likely to continue to weigh on wage growth over the medium term. While the unemployment rate has fallen from a recent peak of 6.3%, underutilisation remains high by historical standards, suggesting that there remains a considerable amount of spare capacity in the labour market. While we think that wage growth has stabilised at a low level, the high rate of underutilisation suggests that wages are unlikely to accelerate significantly in the near term”.

ANZ FY16 Results – Back To Basics

ANZ today announced a Statutory Profit after tax for the Financial Year ended 30 September 2016 of $5.7 billion down 24% and a Cash Profit of $5.9 billion down 18%. It is a complex picture thanks to restructuring, re-balancing and rising provisions.

They are betting the bank on growing the Australian business, which now comprises 62% mortgage lending, as they exit areas of business in Asia, and restructure, to a simpler, and perhaps more profitable enterprise.

They say the FY16 result reflects a good performance in ANZ’s core domestic franchises and significant reshaping of the business driven by ANZ’s strategic focus to create a simpler, better capitalised and more balanced bank that produces better outcomes for customers and shareholders.

The result reflects an emphasis on delivering strong capital and cost management outcomes together with $1,077 million of charges (after tax) for specified items primarily related to reshaping the Group to position it for improved performance in future years.

Adjusted Pro-Forma Cash Profit was $7.0 billion down 3%, while Profit before Provisions increased 6% as the benefits of simplification and re-balancing initiatives began to emerge.

Return on equity was stable in the second half of the financial year at 12.2% (adjusted Pro-forma Cash Profit basis). The Final Dividend of 80 cents per share is consistent with guidance provided at the Interim Profit announcement. The Total Dividend for FY16 is 160 cents per share fully franked down 12%.

At the 2016 Interim Result, ANZ advised that it was conducting strategic reviews of the Group’s Retail and Wealth business in Asia, and its Wealth businesses in Australia and New Zealand. The reviews considered each business within the context of the overall Group strategy including capital efficiency.

ANZ announced on 31 October 2016 that it had entered into an agreement with DBS to sell the Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia. ANZ intends to clarify plans for the remaining businesses in Retail and Wealth in Asia during FY17.

The strategic review of ANZ’s Wealth businesses in Australia and New Zealand concluded that while the distribution of high quality Wealth products and services should remain a core component of the Group’s overall customer proposition, ANZ does not need to be a manufacturer of Life and Investments products.

The initial focus will be on the Australian Wealth business where ANZ is exploring a range of possible strategic and capital market options that will maintain strong outcomes for customers. This includes the possible sale of the life insurance, advice and superannuation and investments businesses in Australia.

ANZ will pursue a disciplined approach to this process and will update the market as appropriate. The Wealth business in New Zealand will be considered separately during 2017.

Net Interest income was up 3%, to $15,095m from FY15, whilst other operating income fell 16% to $5,434m, so combined, operating income was down 3%.

Operating expenses rose 11% to $10,422m, whilst credit impairment charges rose 64% to $1,929m. Group net interest income fell 4 basis points, and whilst there were falls in NZ, (down 9 basis points), Institutional rose 14 basis points and Australian nim was static, thanks to repricing in the book.

In FY16 ANZ recognised the impact of a number of items collectively referred to as Specified Items which form part of the Group’s Cash Profit. The items are primarily related to initiatives undertaken to re-position the Group for stronger profit before provisions growth in the future.

ANZ recorded $1,077 million (after tax) of specified items charges in Cash Profit during the Financial Year, of which almost half ($522 million) related to a change in the application of the software capitalisation policy. This change in policy effected a 24% reduction in the Capitalised Software
balance year on year.

One third of the specified items charges occurred in the second half, including an additional restructuring charge of $100 million (post tax) and a derivative credit valuation adjustment (CVA) of $168 million (after tax).
The restructuring charge supports the evolution of the Group’s strategy and will underpin further productivity through reshaping of the workforce to reduce complexity and duplication, and to align with the changing emphasis in Institutional. ANZ has refined the methodology for the calculation of CVA, a component of valuing derivative instruments in the Markets business. The updated methodology makes greater use of market credit information and more sophisticated exposure modelling and is in line with leading market practice.

Adjusted Pro-Forma Cash Profit information has also been provided to allow the market to better analyse the ongoing operations of the Group. Looking at a cash result basis (which excludes non-core items included in statutory profit), operating income was flat compared with last year at $20,577m, whilst expenses rose 11% to $10,422m and impairments rose 62% to 1,956m. This translated to a cash profit down 18% to $5,889m.

The total provision charge of $1.96 billion ($1.94 billion individual provision charge and a $17 million collective provision charge) equates to a loss rate of 34 basis point of which 3 bps is attributable to the recently announced settlement of the Oswal case. Gross impaired assets increased to $3.17 billion with new impaired assets up 3% compared to the prior half.While in aggregate the credit environment is broadly stable, pockets of weakness continue to work their way through the economy, largely reflecting stress moving through the resources and resources related sectors. The stress appears to have now largely passed through the Institutional market and is progressively moving through the Commercial and Retail sectors. ANZ therefore expects provision charges to remain broadly the same in the 2017 Financial Year as a percentage of
gross lending assets.

The APRA CET1 capital ratio at 30 September was 9.6% (14.5% on an Internationally Comparable basis). Organic capital generation of 106 basis points in the second half was 33 basis points higherthan the second half average of the past 4 years, primarily driven by Credit RWA reduction (excluding foreign exchange impacts) of $12 billion in the Institutional business.

The Final Dividend of 80 cents per share is the same as for the first half and is in line with guidance. The total dividend for FY16 of 160 cents per share represents a Dividend Payout Ratio of 81.9% on a Statutory Profit basis and 79.4%on a Cash Profit basis.

ANZ is gradually consolidating to its historical payout range of 60-65% of annual Cash Profit which ANZ believes provides a more sustainable base reflecting the greater demands for capital arising from increased regulatory requirements. On an Adjusted Pro-forma Cash Profit basis the Dividend Payout Ratio was 67.1%.

Looking at the segmentals, the Australian business grew income 8.8% to $9,365m, NZ 3.1% whilst the Institutional Bank income fell 6.1%.

They highlight that mortgage funding costs rose, relative to the RBA cash rate, mainly thanks to increased competition for deposits.

The Australian mortgage book grew 7%, but below system from $231bn in FY15 to $246bn in FY16. They increased their footprint in NSW and VIC, relative to WA and QLD. The mix of investor loans however fell, from 37% to 29% in FY16. 52% of loans are broker originated, up from 48% last year. Mortgage lending now accounts for 62% of all Australian lending, up form 60% last year.

Looking at the mortgage portfolio, 39% of households are ahead with repayment, down from 42% last year. 37% are interest only loans (same as last year). Delinquencies vary by state, with a significant spike in WA and QLD.

They have made changes to their lending standards. In terms of serviceability, they now apply an interest rate floor to new and existing mortgage lending introduced at 7.25%. They introduced of an income adjusted living expense floor (HEM) and a 20% haircut for overtime and commission income, as well as increasing income discount factor for residential rental income from 20% to 25%

They changed their lending policy to include a LVR cap reduced to 90% for investment loans, LVR cap reduced to 70% in high risk mining towns, decreased maximum interest only term of owner occupied interest only loans to 5 years, withdrawal of lending to non-residents, limited acceptance of foreign income to demonstrate serviceability and tightened controls on verification and tightening of acceptances for guarantees.

[This of course won’t necessarily apply to loans already on book].

They say the end-to-end home lending responsibility managed within ANZ, they have effective hardship & collections processes, and ANZ assessment process apply across all channels.

ANZ Exits Asian Retail Banking Businesses

ANZ today announced an agreement to sell its Retail and Wealth business in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank. This continues its realignment of its business away from Asia, although ANZ will focus on running a world class Institutional Bank in Asia they said.

The Retail and Wealth business being sold includes ~$11 billion in gross lending assets, ~$7 billion in credit risk weighted assets and ~$17 billion in deposits. In the 2016 financial year, the business accounted for approximately $825 million in revenue and net profit of ~$50 million.

Most people currently employed in ANZ’s Retail and Wealth business will join DBS providing continuity for customers and greater opportunities for staff.

Sale price represents an estimated premium to net tangible assets at completion of ~$110 million. ANZ will take a net loss of ~$265 million including write-downs of software, goodwill and property, and separation and transaction costs. The impact is expected to be slightly higher in the first half of FY2017, but offset back to ~$265m in subsequent periods.

The sale is expected to increase ANZ’s CET1 capital ratio by around 15-20 basis points and is expected to be broadly EPS and ROE neutral.

The transaction is subject to regulatory approvals in each market with completions anticipated over the next 18 months progressively from mid-2017.

ANZ will focus on the Group’s core Asian business in Institutional Banking where it is ranked a top four corporate bank with a significant ongoing presence in 15 Asian countries and $43 billion in gross lending assets.

Commenting on the transaction from Hong Kong, ANZ Chief Executive Officer Shayne Elliott said: “Our strategic priority is to create a simpler, better capitalised, better balanced bank focussed on attractive areas where we can carve out winning positions.

“Asia remains core to ANZ’s strategy. This transaction simplifies our business while allowing us to continue to benefit from higher levels of growth in the region through a focus on our largest, most successful business in Asia – banking large corporate and institutional clients
driven by trade and capital flows particularly with Australia and New Zealand.

“By focussing our resources in Asia – whether that is capital, technology or people – on Institutional Banking, we can continue to build a world-class, capital efficient business by strengthening our network and the support we provide to our key institutional clients.

“In Retail and Wealth, although we have grown a profitable business in Asia, without greater scale ANZ’s competitive position is not as compelling.
“Having looked carefully at the business in recent months, it is clear the environment we face has changed and to make a real difference for our Retail and Wealth customers, we would need to make further investments in our Asian branch network and digital capability.

Further investments do not make sense for us given our competitive position and the returns available to ANZ,” Mr Elliott said.

ANZ advises of additional FY16 Specified Charges

ANZ will announce its 2016 Full Year financial results on 3 November 2016. In advance of that announcement, the Group advises it will be recording additional specified charges in relation to the following items.
Derivative Credit Valuation Adjustment (CVA) – Institutional Markets Business.

ANZ has enhanced the methodology for the calculation of CVA, a valuation adjustment made to determine the fair value of derivative instruments. The refined methodology makes greater use of market credit information and more sophisticated exposure modelling and is aligned with leading market practice. A $168 million1 charge (net of tax) will be recorded as a reduction to Institutional Markets revenue and will appear in the Specified Items table for comparative purposes. Of this, $25m relates to movements in CVA in the 2016 financial year with the remainder related to a once off adjustment for prior periods to mark to market the current derivative portfolio.

Restructuring Charge

ANZ will be recording a further $100 million (net of tax) in restructuring charges to support the evolution of the Group’s strategy, underpinning further productivity through reshaping the workforce, reducing complexity and duplication. The Group will outline the use of this charge in more detail in the FY16 results materials, and it will appear in the Specified Items table as per the restructuring charge taken in the First Half.

Total Second Half Specified Items Charges

Total Specified Items in the Second Half will be $360m (net of tax). In addition to the items outlined above this includes the second half impact of changes in the application of the Group’s software capitalisation policy and pro forma adjustments for the Esanda Dealer Finance divestment announced in ANZ Interim Results.

Tables were provided in the Consolidated Financial Report and Dividend Announcement at the First Half Result to identify the impact of Specified Items on Cash Profit in order to allow comparison with prior periods. A template in the same format, updated to include the Second Half Specified Items is included with this News Release to assist the market with its preparations ahead of the FY16 results release.

Job Ads Slip In September – ANZ

ANZ says after posting a solid gain in August, ANZ job ads edged lower in September.

Job advertisements fell 0.3% m/m in September after a 1.7% rise in August. Annual growth in job ads slowed to 3.7% from 8.0% in the previous month. In trend terms, job ads rose 0.3% m/m and 5.2% y/y. While trend annual growth in job advertisements has slowed, it remains consistent with a gradual improvement in the labour market.

The fall is consistent with some loss of momentum in labour markets this year, and more recently, in surveyed business conditions. It is also consistent with the RBA’s business liaison which reported that some firms had taken a more cautious approach towards hiring.

That said, job ads and still-elevated business conditions continue to suggest that the labour market remains in good shape. Indeed, the rise in job ads over the past three months is consistent with moderate annual employment growth, which should be sufficient to underpin a further decline in the unemployment rate, albeit at a gradual pace