Why Shayne Elliott’s future hinges on the ANZ-Suncorp deal

Save articles for later

Add articles to your saved list and come back to them any time.

The bashing of the Australian Competition and Consumer Commission began in earnest after it stood firm on its rejection of ANZ’s proposed $4.9 billion takeover of Suncorp’s bank.

The decision, wrote commentators, would test the regulator’s “credibility”. The regulator’s reasoning was “rubbery”. And worse: the ACCC’s view of the deal and the financial services market, which it helps regulate, was “unsophisticated”.

Institutional investors then piled on, saying how bad the ACCC decision was, followed by Queensland Treasurer and want-to-be next premier Cameron Dick, whose state stands to receive $20 million-plus in handouts from ANZ, plus guarantees on 820 jobs if the deal happens.

The performance of the retail and commercial divisions of ANZ has been “underwhelming” during Shayne Elliott’s almost eight years as chief executive. Credit: Martin Ollman

ANZ chief executive Shayne Elliott must be chuffed at this reaction because while there’s been ample criticism of the ACCC, some justified, there hasn’t been enough attention or criticism of Elliott and why he and his bank so badly need the deal.

Since Elliott became chief executive in January 2016, ANZ has lost billions in market share in retail and commercial banking (see the graphs below). The loss of that market share – some might consider it a destruction of shareholder value – is now being bought back through the $4.9 billion Suncorp deal, which will ultimately be paid for by shareholders, if it succeeds. ANZ is appealing the ACCC’s decision through the Australian Competition Tribunal.

Elliott has described the chance to buy Suncorp’s bank as a “once-in-a-lifetime opportunity”. However, it could be argued that ANZ wouldn’t need to spend the money if its own retail and commercial divisions had performed better during Elliott’s stewardship. He’s the longest serving of the four major bank chief executives.

In June, Goldman Sachs analyst Andrew Lyons released an upbeat note on ANZ’s institutional division and its performance, which is why he has a buy on the stock. But about 20 pages into the note he delivered a critique of the “underwhelming” performance of the bank’s retail and commercial divisions since Elliott became chief executive, which focused on the loss of market share.

ANZ’s board continues to back Elliott, despite that market share loss. Last year, Elliott explained that he’d spent seven years simplifying ANZ, by offloading close to 30 businesses, reducing headcount and introducing an agile organisational structure and culture, and all that was aimed at getting the bank into a position for growth.

It’s now almost eight years of Elliott leading ANZ, and it’s taken this long for the bank to be in a position to grow, which it’s doing mostly through acquisition? Sure, Elliott’s been unwinding his predecessor’s Mike Smith’s legacy – the folly of building a super regional bank in Asia coupled with an underinvestment in the bank’s technology platforms – but could Elliott and his senior management not have done more to protect and grow market share in ANZ’s core business of home and business lending over the past decade?

Paul O’Sullivan, ANZ’s chair since October 2020, last year, said: “Overall [ANZ buying Suncorp’s bank] will result in much stronger competition and growth for Queensland consumers.”

Since Shayne Elliott became chief executive in January 2016, ANZ has lost billions in market share in retail and commercial banking.

Should Queensland consumers expect growth of Suncorp under ANZ’s ownership, given that the major bank hasn’t grown its own market share in retail and commercial lending, but instead shrunk it? ANZ might argue it’s the quality, not quantity, of its market share. However, it wouldn’t be doing an acquisition if it wasn’t seeking quantity.

In January 2016, ANZ had 16 per cent of residential mortgages nationally. Now that’s near 13 per cent. Through that same period Suncorp’s market share was between 2 per cent and 3 per cent.

The $4.9 billion deal, if it happens, will shift ANZ from fourth place in housing loans to third, overtaking National Australia Bank. It would lift ANZ’s market share from around 13 per cent to 15.7 per cent.

ANZ chair Paul O’Sullivan also chairs Optus, Western Sydney Airport and is a director of St Vincent’s Health Australia and Australian Tower Network.Credit: Arsineh Houspian

In addition to chairing ANZ, Paul O’Sullivan chairs Optus, the nation’s second-largest telecommunication’s company, which was the subject of one of Australia’s worst data breaches last year. As well, he chairs and oversees the $5.3 billion development of Western Sydney Airport, and is on St Vincent’s Health Australia and Australian Tower Network boards.

O’Sullivan’s busy dividing his time between Sydney and Melbourne. So busy that ANZ’s board still hasn’t announced a successor to Elliott. Elliott will remain entrenched at least until the tribunal’s ruling, which could take six months. The tribunal’s president, Justice Michael O’Bryan, was one of four individuals who wrote the 2015 Harper Review, which was billed as the first comprehensive review of Australia’s competition framework in two decades.

In the time Elliott has been chief executive, ANZ’s statutory full-year profit from 2016 to 2022 rose by 25 per cent. The shedding of so many ANZ businesses and the reduction in headcount, has helped underpin earnings.

ANZ’s share price performance is a different story. Since January 2016, the ASX 200 rose by almost 40 per cent. ANZ’s shares over that period declined almost 8 per cent. To be fair, of the four major banks only Commonwealth Bank’s shares rose during that same period, up almost 24 per cent, while Westpac was the worst performer, down almost 33 per cent. During that time, NAB’s shares were down about 4 per cent, and Suncorp almost 11 per cent.

While ANZ shareholders, analysts and commentators await the tribunal’s decision, it’s time tougher questions were asked of Elliott and the ANZ board about growth and succession plans, especially if the Suncorp deal falls over.

The writer owns Suncorp shares.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

Most Viewed in Business

From our partners

Source: Read Full Article