The ANZ Bank (ANZ) has cracked and wants to go to being just being a bank. A big bank, mind you but not being a vertically integrated all singing and dancing one stop product shop, that also is a bank.
In a landmark move, the ANZ yesterday confirmed it is looking to get out of creating wealth management (including financial advice, fund management) products and all the pitfalls that brings and go back to its roots as a bank, borrowing from customers and ending to those who need loans and other related services – such as other people’s financial products.
The news came after the bank slashed its final and full year dividend and hinted more would come this year as it cut its target payout ratio. As well profits fell as the bank continues to unwind its great Asian wealth management adventure of former CEO, Mike Smith.
Thew news from the bank saw the shares edge 0.6% higher to end at $27.35.
The rising tide of poor media, financial advice and other scandals, mismanagement of customer accounts, rapacious fees and charges, lying to customers, especially in their life insurance arms, and becoming a political toy has finally proved too much with the ANZ confirming in its 2015-16 annual results that it is looking to sell its Australian wealth management business, and then examine the same business in New Zealand next year.
The ANZ’s move will pressure the Commonwealth Bank (CBA) to address growing pressure from shareholders and others to sell its huge wealth management business, and will also see Westpac (WBC) questioned as to what it plans to do when it reveals its full year figures on Monday. The National Australia Bank (NAB) has sold 80% of its life insurance business, but there are questions about its performance in its wealth business.
It is a tribute to aggressive, investigate journalism by the likes of Fairfax Media and the ABC in reporting of financial scandals at banks like the Commonwealth and other banks.
It is also implicit criticism that this journalism forced tardy regulators, such as the supposed watchdog, ASIC, to do something, and embarrassed APRA, the key bank regulator, to start questioning bank culture, all the way to the top and the various boards.
ANZ CEO, Shayne Elliott in confirming the possible sale of the life insurance, advice and superannuation and investments businesses in Australia in the bank’s results on Thursday, said on Thursday.
"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.”
With those two paragraphs, the ANZ has exploded the long trumpeted idea that banks can force their customers to buy multiple products created by the bank, on top of what they usually have – a savings/cheque account, credit or debit card and home mortgage.
This means the ANZ is planning to exit superannuation and other savings products as well as financial planning. Just how far it goes will depend on interest from others and the price the ANZ wants.
The ANZ could end up keeping some parts of the business because there are no buyers ready to pay the prices the bank wants (it is already selling wealth management assets in Asia at massive losses – $265 million in the latest year).
It is likely that global fund management giants such as Blackrock of the US will be at the forefront of buyers. It already has tens of billions of dollars invested in the Australian stockmarket in companies such as BHP and Amcor, and billions more in property and government and corporate bonds.
The ANZ is saying that it will still offer these added products, but created by someone else (to blame), who will carry the responsibility for the processing, payments, quality of the advice and regulator responsibilities for the stuff being sold.
In other words, that side of the finance and wealth industry has finally gotten too much (and too costly) for the ANZ and its nerve has broken and it wants out.
It could be that its peers reject the ANZ’s approach and continue with their wealth management arms, but the ANZ’s move won’t be the last by an Australian bank.
The financial reason is easy to understand – the wealth Australia division cash profit for the year was down 24% to $327 million. The ANZ believes it can take whatever cash it gets for the business and move it elsewhere in the bank, and add to its capital reserves to make the bank safer than it is now.
The ANZ result was also notable for one other event – the ending of the belief that the banks are profit and dividend machines. The ANZ’s cash profit fell 18% to $5.9 billion and it also slashed its final dividend to 80 cents a share from 95 cents a year ago, a chop of more than 15%.
Total dividend for the year is $1.60 a share, down from $1.95 and the bank says its dividend payout ratio is heading back to 60% to 65% that it was a few year. The payout ratio for 2015-16 was nearly 80%, or 67% on an adjusted basis.
That means financial pain for hundreds of thousands of small investors, both individual and in self-managed super funds, who have built their investment strategies on the full franked dividend flow from the ANZ.
They are already getting record low returns on bank deposits and cash (but paying record low interest rates on their investor home loans).
