Tag: ANZ

ANZ Ups IO; Lowers P&I Mortgage Rates

ANZ has announced changes to loan rates today, effective 16 June.  They are using the price lever to throttle bank interest only loans, whilst seeking to gain owner occupied P&I share.

ANZ today announced a five basis point reduction in variable interest rates for customers paying principal and interest on their home loans, taking the bank’s standard variable rate for owner-occupiers to the lowest of major banks at 5.20%pa

The decrease will benefit more than 80% of ANZ’s customers with an owner-occupier home loan. Customers with an investor loan paying principal and interest will also benefit from a five basis point reduction on their standard variable rates.

Variable interest-only home loan rates for investors and owner-occupiers will increase 30 basis points in response to regulatory and market conditions.

ANZ Group Executive Australia Fred Ohlsson said: “Many Australians are finding it difficult to manage household budgets at present and ANZ is pleased to be able to reduce rates for the majority of our customers who are working hard to pay off their homes.

“While we know those only paying interest on their loans will be disappointed, we need to manage our regulatory obligations and we are now required to hold additional capital against our home loans. We also need to better balance our portfolio towards those paying off their homes.

“There are clear benefits for our customers to be paying off their loans and we have made this as easy as possible by removing fees associated with moving across from interest-only loans.

Mr Ohlsson added: “Today’s decision is not in response to the recently announced bank levy and we are still to determine the final impact of the tax.

“We do however recognise the work regulators are doing to manage the growth of both investor and interest-only loans and we will continue to be transparent on the impact this will have on how we structure and price our home loan products,” he said.

 

ANZ APRA Mortgage Risk Weight Up to 28.5%

The new risk weight for mortgages at ANZ will be around 28.5% according to information released today. This is higher than some expected, but still well below the 35-40% weighting of the regional banks, so continues to highlight the relative benefits the large players have. This is before the next round of discussion on risk weights we expect from APRA later in the year.

The rise in risk weights has been one of the main drivers of mortgage repricing, which is impacting all lenders in the sector to varying degrees.

In an ASX announcement on 8 August 2016, ANZ said that it expected the average risk weight for its Australian residential mortgage lending book would increase following changes by the Australian Prudential Regulation Authority (APRA) to capital requirements for Australian mortgages and a review by APRA of ANZ’s mortgage capital model.

APRA has now completed its review of ANZ’s mortgage capital model and approved the new model for Australian residential mortgages to be adopted from June 2017.

Adoption of the new model is expected to decrease ANZ’s Level 2 Common Equity Tier-1 ratio by 26 basis points based on ANZ’s balance sheet at 31 March 2017, representing an average risk weight applied to the Australian mortgage portfolio of a little over 28.5%.

This impact is consistent with ANZ’s 2017 capital management plan and no additional capital management actions are required as a result.

As indicated at ANZ’s First Half 2017 financial results, the Group expects APRA to make further changes to sector capital requirements through a clarification to the “unquestionably strong” capital framework.

ANZ Accepts Bank Tax Will Be Imposed

David Gonski, ANZ Chairman wrote to its shareholders, and included comments on the bank tax, and and also addressed the question of the relationship between the community and the banks.

Normally I would write to update you on our financial performance at that time. However, with the recent announcement of a new tax covering five major Australian banks in the Australian Government’s Federal Budget, I felt there was a need to be in touch with you sooner.

It is not only important to share with you the key aspects of our performance in the first half of 2017, we feel it is important that you are aware of the likely impacts of the tax and how we are addressing the situation.

2017 FIRST HALF FINANCIAL PERFORMANCE

During the first half of 2017 ANZ made good progress with our strategic focus on creating a simpler, better capitalised and more balanced bank. Statutory Profit was $2.9 billion, up 6%, allowing us to distribute an Interim Dividend of 80 cents per share fully franked in line with the first half of 2016.

A highlight of ANZ’s performance in the first half was the progress we made in strengthening the bank and improving shareholder returns. ANZ’s Common Equity Tier 1 capital position rose to 10.1%, our strongest position in recent history. Our Return on Equity increased from 9.7% to 11.8%, the first material increase we have seen since 2010.

These are strong outcomes reflecting a significant reshaping of ANZ’s business over the past 18 months to adapt to the rapidly changing environment and deliver materially better outcomes, not only for shareholders but for our customers and the community.

In every area of the business we continued to work hard to improve the experience of our customers. We reduced interest rates on some credit cards, introduced new debit cards to improve accessibility for vision-impaired customers, and announced plans to improve security through the use of voice biometrics. To support small businesses, we launched new digital solutions such as ANZ BladePay and ANZ Be Trade Ready.

In Australia and New Zealand our aim is to be the best bank for home owners and people who want to start and run a business. Both Australia and New Zealand delivered a solid performance in the first half. We are growing prudently in home lending in Australia and remain number one for home loans across New Zealand concentrating on owner-occupiers,
and in the small business segment.

In Institutional Banking we continued to reshape the business to improve returns through the distinctive proposition we have supporting trade and capital flows to customers who value our network and capabilities in Australia, New Zealand and Asia. This saw Institutional Banking deliver positive results in Australia and Asia supported by strong productivity gains and improved capital efficiency.

We also made good progress in simplifying our business. We completed a strategic review of Wealth Australia and we are currently exploring strategic options for the business while ensuring that the distribution of quality Wealth products and services remains part of ANZ’s customer proposition. We also signed agreements to sell our 20% stake in Shanghai Rural Commercial Bank, the UDC Finance business in New Zealand, and ANZ’s Retail and Wealth businesses in six Asian countries.

IMPLICATIONS OF THE BANK TAX

In the 2017 Federal Budget, the Australian Government announced it would introduce a new tax from 1 July covering five major Australian banks. Based on the current draft legislation and ANZ’s 31 March 2017 balance sheet, we estimate that its annual financial impact would have been approximately $240 million after tax.

The net financial impact, including the Bank’s ability to maintain its current fully franked ordinary dividend, will be dependent upon business performance and decisions we make in response to the tax.

Clearly we are disappointed at the introduction of this new tax. However, given the support it has in Parliament, we accept that it will pass into law.

Our focus has been to work constructively with government to ensure the legislation associated with tax is as fair and efficient as possible in the circumstances. We believe:

  • The tax should have a sunset clause where it is extinguished when the Federal Budget is repaired, which is the principal stated reason for the tax.
  • The level of the tax should be set in the legislation so it cannot be increased in the future without the agreement of both Houses of Parliament.
  • Any future proposed adjustment should be referred to the Council of Financial Regulators for their public advice on how the tax and any proposed changes interact with other regulatory objectives.
  • The tax should apply equally to large foreign banks operating in Australia to ensure that it does not give foreign banks a competitive advantage over Australian banks in the area of global institutional lending.

BUILDING BRIDGES, RENEWING TRUST

To me, the bank tax is further evidence of the breakdown in the banking industry’s relationship with many in the Australian Parliament and the broader community. I want to assure you that ANZ has been working hard to ensure that community trust in banks reflects the crucial role we have in keeping our economy strong and secure. This includes our positive and constructive approach to recent Parliamentary inquiries and to dialogue over the introduction of this tax.

It is not in shareholders’ interests or the national interest that the relationship between banks and the community continues in this way. We clearly have much to do but our aim is to work even harder to help repair the relationship for the good of shareholders and of all Australians. We acknowledge that this will require us to think and act differently. However, ANZ believes that making this change is fundamental to creating value for shareholders, for customers and for the community now and in the future.

Our acknowledgement of the need to change and our actions will, I hope, be understood by the community as a genuine commitment to responsibly, serving our customers’ and communities’ needs.

ANZ has been an important contributor to Australia and New Zealand’s economic growth and prosperity for more than 180 years. While this is a challenging time, at ANZ we have a clear strategy, our business is performing consistently and we are committed to work even harder to help our customers succeed and to build stronger communities. On behalf of shareholders, I want to acknowledge and thank our 50,000 employees around the world for the contributions they make every day in the interests of so many customers in Australia and internationally.

ANZ is well positioned to continue delivering for shareholders and all our other stakeholders.

ANZ Estimates Bank Tax Impact

ANZ today commented on the estimated financial implications of the proposed tax on bank liabilities. The proposed enabling legislation has not yet been finalised.

The tax is expected to be paid on a quarterly basis, with the first payment to be made be for the September quarter 2017. We expect that this will be deductible for tax purposes in Australia.

Based on the current draft legislation and ANZ’s 31 March 2017 Balance Sheet, we estimate that the annual financial impact of the tax would have been approximately $345 million on a before tax basis, and approximately $240 million after tax.

We note that at this stage the financial impact can only be an estimate. ANZ’s balance sheet is also undergoing change due to our strategic initiatives that will impact the size of the tax paid.

The net financial impact, including the Bank’s ability to maintain its current fully franked ordinary dividend, will be dependent upon business performance and decisions we make in response to the tax.

ANZ will continue to update the market as the legislation is finalised and further analysis is completed.

$200m+ Refunds Due From Major Financial Advisory Firms – ASIC

ASIC says AMP, ANZ, CBA, NAB and Westpac have so far repaid more than $60 million of an expected $200 million-plus total in refunds and interest for failing to provide general or personal financial advice to customers while charging them ongoing advice fees.

These institutions’ total compensation estimates for these advice delivery failures now stand at more than $204 million, plus interest. As foreshadowed in ASIC’s Report 499 Financial advice: fees for no service (REP499), ASIC can now provide an update on compensation outcomes to date.

Background

In October 2016 the Australian Securities and Investments Commission (ASIC) released REP499. The report covered advice divisions of the big four banks and AMP and described systemic failures to ensure that ongoing advice services were provided to customers who paid fees to receive these services, and the failure of advisers to provide such services. The report also discussed the systemic failure of product issuers to stop charging ongoing advice fees to customers who did not have a financial adviser.

At the time of the publication of the report compensation arising from the fee-for-service failures reported to ASIC was approximately $23.7 million, which had been paid, or agreed to be paid, to more than 27,000 customers.

Since REP 499 a further $37 million has been paid or offered to more than 18,000 customers. In addition, the institutions’ estimates of total required compensation for general and personal advice failures have increased by approximately 15% to more than $204 million, plus interest.

The table provides, at an institution level, compensation payments and estimates that were reported to ASIC as at 21 April 2017. Since that date compensation figures have continued to increase.

Group Compensation paid or offered Estimated future compensation   (excludes interest) Total (estimate, excludes   interest)
AMP $3,816,327 $603,387 $4,419,714
ANZ $43,818,571 $8,613,001 $52,431,572
CBA $5,850,827 $99,786,760 $105,637,587
NAB $4,641,539 $385,844 $5,027,383
Westpac $2,670,479 Not yet available $2,670,479
Total (personal advice   failures) $60,797,743 $109,388,992 $170,186,735
NULIS   Nominees (Australia) Ltd (1) Nil $34,720,614 $34,720,614
Total (personal and general   advice failures) $60,797,743 $144,109,606 $204,907,349

Source: Data is based on estimates provided to ASIC by the institutions and will change as the reviews to determine customer impact continue.

(1) For details, see the section on NAB below.

Key compensation developments

AMP

  • AMP’s total compensation estimate decreased from $4.6 million to $4.4 million as AMP reviewed customer files and data to determine compensation required, and revised its previous estimates.

ANZ

  • The total compensation estimate has increased from $49.7 million to $52.4 million due to the expansion of existing compensation programs and the identification of further failures by authorised representatives of two ANZ-owned advice businesses:
    • Financial Services Partners Pty Ltd; and
    • RI Advice Group Pty Ltd.
  • The largest component of ANZ’s compensation program relates to fees customers were charged for the Prime Access service, where ANZ could not find evidence of a statement of advice or record of advice for each annual review period.
  • In addition, ANZ found that further compensation of approximately $7.5 million is required to be paid to ANZ Prime Access customers for ANZ’s failure to rebate commissions in line with its agreement with customers. This compensation has not been included in the figures in this media release because it does not relate to a failure to provide advice for which customers were charged, but is noted for completeness and transparency.

CBA

  • There has been no substantial change in CBA’s compensation estimate, which remains at approximately $105 million, plus interest, the majority of which relates to Commonwealth Financial Planning Ltd (CFPL). The compensation estimate for CFPL results from a customer-focused methodology whereby, as well as providing refunds where the adviser failed to contact the client to provide an annual review, CFPL will provide fee refunds to customers where:
    • the adviser offered the customer an annual review and the customer declined, or
    • the adviser tried to contact the customer to offer a review, but was unable to contact the customer.
  • Some of the other licensees or banks covered by the ASIC fees-for-no-service project have not, at this stage, adopted a similar customer-focused approach to the situation in which a service was offered but not delivered.  ASIC continues to discuss the approach to this situation with these banks and licensees.

NAB

  • Since the publication of REP 499, by 21 April 2017, NAB reported to ASIC the further erroneous deduction of adviser service fees for personal advice from more than 3,000 customers of the following licensees:
    • Apogee Financial Planning Ltd: $11,978, from 11 customers;
    • GWM Adviser Services Ltd: $179,446, from 290 customers;
    • MLC Investments Ltd: $9,755, from six customers;
    • National Australia Bank Ltd: $2,777, from seven customers; and
    • NULIS: $173,120, from 3,310 customers.
  • In addition, the table shows the expected compensation of approximately $34.7 million by NAB’s superannuation trustee, NULIS Nominees (Australia) Limited (NULIS), for two breaches involving failures in relation to the provision of general advice services to superannuation members who paid general advice fees (other fees referred to in this release relate to personal advice). As announced by ASIC on 2 February 2017 ASIC has imposed additional licence conditions on NULIS following these and another breach: ASIC MR 17-022. The failure was by MLC Nominees Pty Ltd (and MLC Limited for the first of the two breaches).  Whilst on 1 July 2016 the superannuation assets governed by MLC Nominees were transferred by successor fund transfer to NULIS, and on 3 October 2016 NAB divested 80% of its shareholding in the MLC Limited Life Insurance business, accountability for this remediation activity (including compensation) remains within the NAB Group. The estimate of customer accounts affected has increased from approximately 108,867 to 220,460 since REP 499, reflecting the second of two breaches.

Westpac

  • REP 499 noted that Westpac had identified a systemic fees-for-no-service issue in relation to one adviser only, with compensation of $1.2 million paid in relation to those failures.
  • Following further ASIC enquiries, Westpac subsequently clarified that it has paid further compensation of approximately $1.4 million to 161 customers of that adviser and 14 further advisers, in respect for fee-for-no-service failures in the period 1 July 2008 to 31 December 2015.

Next steps

ASIC will continue to monitor these compensation programs and will provide another public update by the end of 2017.  In addition ASIC will continue to supervise the institutions’ further reviews to determine whether any additional instances are identified of fees being charged without advice being provided.

MoneySmart

Customers who are paying ongoing advice fees for services they do not need can ask for those fees to be switched off. Customers who have paid fees for services they did not receive may be entitled to refunds and compensation, and should lodge a complaint through the bank or licensee’s internal dispute resolution system or the Financial Ombudsman Service.

ASIC’s MoneySmart website has a financial advice toolkit to help customers navigate the financial advice process and understand what they should expect from an adviser. It also has useful information about how to make a complaint.

ANZ tightens interest only lending portfolio

From Australian Broker.

ANZ has announced changes to its interest only loans in compliance with government efforts to reduce banks’ exposure to this type of asset.

The bank announced that effective May 29, the maximum interest only period will be reduced from 10 years to five years to allow “investment lending to align to the maximum for owner occupier lending.”

According to an announcement on the company website, this new provision will apply to all ANZ home loan and residential investment loan products.

It will also waive the renegotiation fee for customers who want to shift their interest only to principal and interest repayments, applicable to the same above mentioned products.

Meanwhile, the bank will apply a minimum rental or board expense of $375 per month to residential investment loans to borrowers who are not currently occupying their own homes. The fee will be charged to residential investment loan products and equity manager accounts, the bank said in its announcement.

Changes to ANZ’s loan provisions is in keeping with the regulatory initiatives geared towards bringing down banks’ exposure to interest only loans to 30%, according to a report on news.com.au.

The report also said that the bank will “crack down on customers failing to chip into their principal and also hit those with loan to value ratios higher than 80%”

Treasury Receives Big Bank Feedback

NAB and ANZ have released their formal responses to Treasury relating to the liability tax.

NAB believes the levy is poor policy and, accordingly, does not support it. It says the levy is not just on banks, it is a tax on every Australian who benefits from, and is part of, the banking industry.  They then try to define the bounds and sensitivity of the calculation, with a view to reducing its impact.

NAB requests the production of a Regulatory Impact Statement (RIS) and a period of public consultation on the draft legislation. NAB recommends the levy be applied to the netted derivative balance sheet and collateral position. NAB recommends that the basis for the levy be adjusted for the impacts of the accounting gross ups which occur as a function of inter-company transactions. NAB recommends that the funding of high quality liquid assets be excluded from the levy calculation. NAB recommends that repurchase agreements be excluded from the calculation of the levy. NAB recommends the exclusion of non-funding liabilities, in particular, liabilities and provision for taxes and the levy. NAB recommends that, if included, only targeted anti-avoidance measures are contained in the
legislation. NAB also recommends that discretion be applied on any penalties for under payment.

It needs to be read in conjunction with their CEO’s earlier comments.

ANZ has more broadly tried to explain the potential impact of the tax on customers and shareholders. They also suggest a delay till September 2017 to allow sufficient time for design of the legislation and recommends the tax should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above $100 billion. Finally, they argue the levy means it would be appropriate to re-think the need for any bank loss-absorption framework in Australia.

Westpac said last week:

“Westpac Group CEO, Brian Hartzer, said the new bank tax is a hit on the retirement savings of millions of Australians as well as all bank customers.

This levy is a stealth tax on their life savings, the shares in their superannuation accounts, and it will make Australia’s banks less competitive.

“Yesterday, $14 billion of value was wiped off Australian bank shares because of speculation around this new tax.

“There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.

“The Australian banks are already the largest taxpayers, with Westpac the country’s second largest taxpayer. Westpac already pays over 30% of its profits in tax and this will now increase even further,” Mr Hartzer said.

“While similar taxes operate in other international jurisdictions, they were introduced to recover the cost of Governments having to take over their banks. No taxpayer funds have been used to prop-up the Australian banks. In addition, international jurisdictions that apply measures such as this already have much lower corporate tax rates than Australia – for example, in the UK the corporate tax rate is 20%.

“It is disappointing that the Australian Government has implicitly favoured large foreign banks over Australian banks operating in their home market.

“In addition these reforms are directly counter to APRA’s objective of making the banks unquestionably strong, as higher taxes reduce the banks’ ability to generate capital that supports lending and stability in times of stress.”

Job Ads Stronger In April

The ANZ Job Advertisements index rose 1.4% m/m in April in seasonally adjusted terms, following a more modest 0.8% rise the previous month.

Annual growth in job ads jumped to 10.1% this month from 7.1% in March.

Trend growth in job ads rose by a more modest 0.6% m/m in April. The trend m/m growth rate has remained within the 0.6-0.7% range since June last year. In annual terms, the trend rate rose to 7.7% y/y this month from 7.5% y/y in March.

“The improvement in ANZ Job Ads and other leading employment indicators suggests we may be in for a sustained period of strength in the official employment data following the strong lift in jobs in March.

After tracking around 5¾% for most of 2016, unemployment has recently moved higher. Meanwhile, business conditions and confidence remain well above the long run average, and capacity utilisation now sits at its highest level since 2010.

The jump in employment numbers in March, while encouraging, has not fully closed the gap between the official numbers and survey-based methods. In our view, employment is likely to show further strength over the coming months to close this gap. In time this should be reflected in a pick-up in wage growth. Given the spare capacity in the labour market, however, any improvement in wage growth is likely to be gradual, suggesting that labour cost pressures will continue to remain subdued for some time.”

The agile working style started in tech but it could work for banks

From The Conversation.

The purpose of the “agile” working style is to help businesses adapt to turbulent markets by adopting a fast and flexible approach to work. In one sense, it should come as no surprise that ANZ’s chief executive Shayne Elliot recently announced that ANZ will be shifting parts of its workforce to this style.

With the bank’s recent withdrawal from Asia and subsequent lower than expected revenues, this is part of ANZ refocus on its core business. In fact, each of Australia’s big four banks might be looking to become more efficient and responsive in the face of a tightly regulated market and slowly building retail banking competition from newer financial technology companies.

In another sense though, it’s surprising that one of Australia’s largest banks should signal such a profound change in work style. Finance is certainly not where agile got its start.

The origins of agile

The forerunners of agile stretch back as far as the Plan-Do-Study-Act method developed by Walter Shewart at Bell Labs in the 1930s and the Toyota Production System, based, in part, on the quality and systems thinking of Shewart’s student, William Edwards Deming.

However, agile as we understand it today is seen as emerging from software programming communities. It crystallised when 17 software developers gathered at the Snowbird ski resort in Utah in 2001 to share and refine their approaches to software development.

One of the participants had been reading a book on major companies coping with turbulent markets, called Agile Competitors and Virtual Organizations: Strategies for Enriching the Customer. Drawn to the agile’s connotations of speed and responsiveness, the group eventually adopted it as the moniker for their movement.

They published their views in The Manifesto for Agile Software Development, intending to help accelerate developers’ efforts to reliably produce software of the highest quality. Agile has since spread beyond the confines of IT to the other types of work and other organisations.

How to work in an agile style

As academics Rigby, Sutherland, and Takeuchi explain, agile now covers a broad range of methods, each varying according to their guiding principles and work rules. The three most well-known methods are scrum, lean, and kanban.

Scrum focuses on structuring teams to work across functions in a business, using creative and adaptive teamwork, daily stand-up meetings, and project reviews to quickly invent solutions and improve team performance.

Lean focuses on eliminating waste in systems and does not prescribe work rules to achieve this in the same way as scrum.

Kanban aims to shorten the time between the initiation and completion of work by visualising workflows, restricting the work being done at each stage in development, and measuring work cycle times to detect improvement.

ANZ seems to be most interested in the scrum method. ANZ’s Head of Product Katherine Bray stated:

There are vestiges of roles that we recognise, but with the underpinnings of hierarchy totally blown apart…[A scrum coach] is not your boss, that’s a coach, who is a peer. That product owner is not your boss, they’re a product owner who defines the how, and you galvanise around that.

Going back to the origins of agile and system thinking, it seems clear the agile approach is most likely to succeed where the organisation adopting it possesses structural modularity. Modularity proposes that organisations structure themselves in a way that allows teams to produce work that is layered, discrete, and testable.

This is what Bray is talking about – a radically new approach to roles and work styles at ANZ.

We might dismiss this whole reorganisation as marketing theatre, but intensifying competition and rapid change are all too real. This means many Australian businesses will have to come to terms with agile approaches if they are to remain responsive and competitive.

By taking up agile’s shift from top-down management to teams that organise themselves, and from a focus on compliance to a focus on innovation, ANZ is making its intent clear. It wants to achieve different results by doing things differently – surely a sane approach to change.

Yet this idea challenges the conventional structure and ethos of banks and similarly run businesses. These organisations are built to be secure and centralised in service of efficiency; modularity pushes them to be integrated and decentralised in service of innovation.

Modularity and agility are not easy to achieve. But they are fast becoming necessary if large companies, like ANZ, are to move with the times and adapt well to market turbulence.

Authors: Massimo Garbuio, Senior Lecturer, University of Sydney; Dreu Harrison, Research Assistant, University of Sydney

ANZ exits JV with ETF Securities

From Investor Daily.

ANZ has sold its stake in the ANZ ETFS joint venture with ETF Securities just two years after the partnership was launched in May 2015.

Graham Tuckwell’s ETF Securities has taken full control of the ANZ ETFs joint venture that was launched in May 2015 after ANZ sold back its stake in the business.

ANZ managing director of markets, institutional, Shayne Collins said the decision to sell the stake was “based on ANZ’s desire to simplify the Institutional business, and increase focus on supporting client trade and capital flows across the region”.

ANZ chief executive has previously stated his intention to exit product manufacturing, and is actively courting buyers for the bank’s wealth management business.

As a result of the sale, ANZ ETFS will be rebranded ETF Securities Australia, which will be a wholly-owned subsidiary of the ETF Securities Group.

The firm will continue to be led by Kris Walesby, the current head of ANZ ETFs.

“We are committed to delivering an ambitious programme of new products which we expect to start rolling out over the remainder of 2017,” Mr Walesby said.

“We already have a strong foundation here with 13 ETPs listed on the ASX (eight launched under the ANZ ETFS name and five existing ETF Securities products),” he said.