ANZ's Elliott wants to improve Asian returns

ANZ Banking Group's new chief executive Shayne Elliott will retreat from the expansion through Asia pursued by his predecessor Mike Smith and play catch-up by using digital technology to try to increase retail banking market share in Australia and New Zealand. 

Drawing a line in the sand between Mr Smith, whose dogged pursuit of growth in Asia antagonised some of the bank's investors, Mr Elliott said his focus would be on squeezing higher profits from the Asian network by selling more products to customers of the struggling institutional bank. 

(Left to right) Former ANZ chief executive Mike Smith with his successor Shayne Elliott and chairman David Gonski.
(Left to right) Former ANZ chief executive Mike Smith with his successor Shayne Elliott and chairman David Gonski.  Photo: Josh Robenstone

In a revealing management reshuffle on Wednesday, Mr Elliott spun responsibility for ANZ's retail operations in Asia to its chief executive in New Zealand, a move he said would "liberate" the new group executive for institutional banking, Mark Whelan, to focus on lifting returns. 

Mr Elliott told Fairfax Media that rather than focusing on targets for the contribution of Asian earnings, he would favour a "back to basics" approach, which would involve ANZ focusing on "intermediating trade and capital flow in the region" by creating "a more focused, better connected international network". 

Corporate poet Mark Whelan urges staff to "chase the flag on the hill".
Corporate poet Mark Whelan urges staff to "chase the flag on the hill". Photo: Josh Robenstone

"We have got more than enough of a geographic footprint and product capability [in Asia]," he said. "It is now about making that work and driving value for our customers and shareholders." 

Farhan Faruqui, who was poached from Citigroup in 2014 after a 23-year investment banking career in Asia, will be elevated to a new position of group executive, international, reporting to Mr Whelan, who has been the chief executive of Australia. 


Based in Hong Kong, Mr Faruqui will oversee ANZ's institutional operations in Asia, Europe and America and join the executive committee, which the bank said reflected "the strategic importance of Asia to ANZ's future success". Mr Elliott said Mr Faruqui's was "a hard-edged, business PNL role, driving returns from the resources we have dedicated to that business". 

Analysts say repairing the institutional bank will not be straightforward. ANZ has been trading at a discount to the other big banks for a prolonged period, which Morgan Stanley says reflects "uncertainty about the Asian strategy due to both structural changes and cyclical headwinds". Like other institutional banks in the region, ANZ is under pressure from a subdued outlook for revenue because Asian loan growth is slowing, losses are rising and competition is getting more intense. 

Underperformance noted

But Mr Elliott, who took over from Mr Smith on January 1, revealed ANZ's performance has been hindered by more than macroeconomic factors. The bank had been failing to sell enough products to many of its institutional clients, he said. 

"It is a complex industry, and it is an expensive business to run. You need to nail it. You need to be absolutely totally clear about which customers you are going to deal with, and which customers can essentially pay you for the services you provide."

While welcoming the renewed focus on generating returns, investors said ANZ would have its work cut out to lift the performance of the institutional bank in Asia and might need to consider exiting some operations. 

"The fact of the matter is that Asian corporates, whom ANZ targets, are already well served by local banks and international banks," said Uday Cheruvu, a fund manager at PM Capital. "So ANZ will need to figure out what its customer proposition truly is and only serve niche segments of the markets where they have credit expertise, risk management expertise and ability to provide differentiated services to customers. Where they are competing primarily on price, they will need to exit." 

Mr Cheruvu said that though cross-selling more products was the best way to increase return on equity, all institutional customers were being courted strongly by all major banks. "So it is likely going to be challenging for ANZ to make headway in this objective in the near term. However, focusing their efforts on cross-selling is the best strategy for their institutional business now and in the future," he said. 

Mr Elliott also signalled a shift in emphasis in Australia, promoting Fred Ohlsson from a senior role in New Zealand, where ANZ is the dominant retail bank, to run Australian retail and commercial banking operations. ANZ has the No. 3 market share for Australian mortgages, behind Commonwealth Bank of Australia and Westpac.

Digital future

Mr Elliott also said he had created a new role of group executive of digital banking; the position should be filled in the coming months. "Digital is the whole future of our industry," he said, and the job would involve working with Mr Ohlsson, and David Hisco, chief executive of New Zealand, to enhance customer experiences by developing better technology applications. 

However, some analysts maintain concerns that ANZ underinvested in its technology systems during Mr Smith's tenure. In a note this week, CLSA analyst Brian Johnson said ANZ needed to invest $1 billion in an IT project to address its ageing core banking systems. Mr Elliott rejects the need for such an investment, at least in the short term. 

Mr Johnson also called for ANZ to write down and exit its Asian partnership investments, which are tying up capital. ANZ said on Wednesday that its deputy chief executive, Graham Hodges, would have responsibility for its international investments in Indonesia, Malaysia, China and the Philippines. 

Mr Elliott said ANZ wanted to exit these investments but rejected the call for any write-down of their carrying value – a total of $5.4 billion according to the 2015 annual report – should a buyer not be able to be found.

"These assets have values or they don't. Whether we are trying to sell them or not sell them, they have a value ... If we feel those values are somehow impaired, we need to take a charge, but it has nothing to do with the timing of the sale or whether we are selling or not. There are a lot of accounting rules that impact, we take that very seriously, and we evaluate that multiple times through the year."