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ANZ Group CEO Mike Smith says NZ margin growth nearing end; World making 'painful adjustments necessary to deal with massive debt burden'

ANZ Group CEO Mike Smith says NZ margin growth nearing end; World making 'painful adjustments necessary to deal with massive debt burden'

By Gareth Vaughan

Margins at ANZ New Zealand continued their upwards trajectory in the December quarter but are unlikely to rise further because of stiff competition among the banks for deposits, ANZ Banking Group CEO Mike Smith says.

Smith, speaking on a conference call with analysts' after the ANZ Group issued its first quarter trading update, said margins at ANZ NZ, which includes the ANZ and National banks, UDC Finance and OnePath, were still "continuing to increase a little bit."

"(But) we do expect that to flatten off because the amount of competition for deposits is increasing and therefore it is unlikely that we’ll see any further increases there," said Smith.

In the year to September 30, 2011, ANZ NZ's net interest margins rose 11 basis points to 2.38% and 5 basis points in the second half-year from first-half to 2.40%. The rise came as ANZ NZ delivered record annual net profit after tax of NZ$1.085 billion. That was a year-on-year rise of NZ$218 million, or 25%. The ANZ NZ result was part of a record annual ANZ Group profit as Australia's big four banks made combined record annual profit of A$25 billion.

The ANZ Group's December quarter cash profit of A$1.48 billion, announced on Friday, was also a record.

NZ lending down, deposits up

Smith noted the New Zealand economy was subdued but said the direction ANZ had set for its business here had seen it "continue the positive momentum" of 2011.

"Lending volumes fell slightly (0.7% in NZ dollar terms) well we put in a good performance on the liabilities side with deposits up 2.4%," said Smith. "Credit quality has continued to improve as has the business margin."

The strategy to simplify the New Zealand business, and to continue to reduce its cost base, was making good progress. This includes the move to shift ANZ and National bank staff onto one IT platform with the move coming eight years after ANZ bought the National Bank from Britain's Lloyds TSB. Good progress had also been made with testing and integration, Smith added, with the work expected to be completed later this calendar year.

"Completion of the programme is expected in incur around A$90 million in IT and related costs," Smith said. The 2011 annual result included costs related to the IT project of NZ$111 million. A year ago the bank said the combined cost of switching to one IT platform and restructuring group management, including laying off 45 staff and establishing a regional reporting structure, would cost NZ$220 million.

IT move running late as ANZ strives to be regarded as NZ's best bank

ANZ  is effectively shutting down the ANZ IT platform and adopting the National Bank’s Systematics core banking system in a move that was supposed to be completed by late 2011. An ANZ NZ spokesman said the move to a single IT system is aimed at simplifying the business, and providing better service and products for customers, with "the ultimate goal of being regarded as New Zealand’s best bank."

"We are now in the thick of the test phase and as we move forward in 2012 our strong focus continues to be on testing and rehearsing for conversion to ensure that we get this right," the spokesman said.

He said progress so far on the move to a single core banking system included;

We have reduced complexity for ANZ and National Bank customers by simplifying our product suite, including successfully decommissioning around 80 products.

We have migrated over 380,000 customers to the simplified suite of products, which are now more relevant to customer needs and more competitive.

Completed staff training on systems and processes to ensure National Bank and ANZ staff are fully up to speed and can continue to seamlessly support customers.

More than 100 functional releases have been carried out, adding value and increased functionality for new products and some existing products, and progressively clearing the way for conversion activity in 2012.

'Massive debt burden'

Meanwhile, Smith had a downbeat prognosis of the global economic situation.

"I believe it’s clear we’re presently in the second and more protracted phase of the global financial crisis. This is really the work out phase where the world makes the painful adjustments that are necessary to deal with what is a massive debt burden," said Smith.

"We’re seeing this in the US where there are positive signs the consumer sector is recovering very slowly from the subprime bubble, and of course the crisis among US banks."

"We’re also seeing it in Europe which is struggling to deal with unsustainable levels of government debt, a weak banking system and the enormous volatility that this is causing, not only for financial markets, but for the social cohesion in countries that have been forced to go through a rebasing of their living standards," he said.

"We’re also seeing it in strong countries like Australia where concern about the economic outlook overseas and the impact of structural change going on in the economy is driving cautious behaviour both from the consumer and from business."

Credit growth would continue to be lower for the foreseeable future, especially in Australia and New Zealand. Based on the Reserve Bank's sector credit data, agriculture debt fell 0.5% in 2011 compared with 14.9% growth in 2007 at the height of the global cheap credit bubble. Business debt rose 1.7% last year versus 13.3% in 2007, housing debt rose 1.2% versus 12.8% growth and consumer debt fell 0.3% versus 5% growth.

Repricing of risk

Margins would be squeezed, Smith added, as the repricing of bank risk in global markets continues to rise, pushing the average cost of wholesale funding higher. "Intense competition" for deposits would continue.

"New technology and the internet has been transforming what is possible in banking and reshaping our customer habits and their expectations of us, and we have to accelerate changes to our own business models."

On top of this increasing global regulation - where Smith's ire is directed at the new Basel III capital rules that are being implemented over several years - is "permanently increasing" the cost of banking.

"And when looking at changes like Basel III, whilst these reforms were well intentioned, some of the changes are coming at the worst possible time for the world economy and I really do seriously worry about the consequences for growth and stability, especially in Europe," Smith said.

"On top of all that the world is going through a once in a century shift in the global economic and political order, obviously towards Asia. And this has to impact the strategy of every business in the western world."

Smith's comments come hot on the heels of ANZ leading an out of cycle hike in floating, or variable, mortgage rates in Australia and laying off 1,000 Australian staff. Of these moves, ANZ said they reflected a need to transform the business in "new and often painful ways." An out of cycle floating mortgage rate rise comes when the banks' lift their rates despite the Reserve Bank not increasing the Official Cash Rate.

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11 Comments

unfortunately, I dont see the ANZ as a survivor of the debt burden adjustment process. Credit growth will be negative.

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Oh dear oh dear....what we said would come to pass is coming to pass...we was rubbished...we was laughed at...we got told the fun would never end...rates would never rise...Alan would sort the problem...

Well Alan's leaving...and Smith is doing what the bankers do when they know the end is nigh...he's getting in first so he can later on say he did warn the country...yeah sure.

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"the social cohesion in countries that have been forced to go through a rebasing of their living standards",

 

I guess you can't come right out and tell folk they're on the downslope, but that translates as "you are next".

 

Either this guy is wrong, or Olly is, seems to me, and I know who I'd not have my money on least.

 

 

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What the world is ….. bloody hell. I thought these guys, who manage the world earning good money doing a great job. The more money they earn, the better they are doing the job.

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"We’re seeing this in the US where there are positive signs the consumer sector is recovering very slowly from the subprime bubble, and of course the crisis among US banks."

Ahh, no we are not. That's Obamalony! 

 

 
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I put aspects of this into Gobble-Translate and got this

“painful adjustments that are necessary to deal with what is a massive debt burden," = the assets are not marked to market, and loans are going sour

“positive signs the consumer sector is recovering very slowly” = we are totally positive the consumer sector has tanked

“Europe which is struggling to deal with unsustainable levels of government debt “ = we know the governments cant pay it back, either

“rebasing of their living standards “ = we have pretty much taken everything they had, now they are poor

“strong countries like Australia where concern about the economic outlook overseas “ = Our side of the Tasman is about to tank also

“structural change going on in the economy is driving cautious behaviour both from the consumer and from business” =  everybody is onto us now, we have pretty much taken everything they had, now they are poor

“Credit growth would continue to be lower for the foreseeable future, especially in Australia and New Zealand “ = I'm not sure if we can keep the game going much longer

“the repricing of bank risk in global markets continues to rise” = who in their right mind would lend to a bank

“ire is directed at the new Basel III capital rules “ = what's wrong with fractional reserve banking ?

“Is permanently increasing" the cost of banking “ = we cant make as much money

“coming at the worst possible time for the world economy “ = and we need lots more money to fill the hole we know is coming

“obviously towards Asia” = well we have pretty much taken everything you had, your now poor

And put all together, it goes like this..

the assets are not marked to market, and loans are going sour

we are totally positive the consumer sector has tanked

we know the governments cant pay it back, either

we have pretty much taken everything they had, now they are poor

Our side of the Tasman is about to tank also

everybody is onto us now, we have pretty much taken everything they had, now they are poor

I'm not sure if we can keep the game going much longer

who in their right mind would lend to a bank

what's wrong with fractional reserve banking ?

we cant make as much money

and we need lots more money to fill the hole we know is coming

well we have pretty much taken everything you had, your now poor

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I think Michael Hudson pretty well nails it talking about the technocrat imposed austerity

 

"Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books…. Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy.

 

Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

 

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage."

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Nicole Foss is coming. We've got her here in March.

 

http://www.sustainabledunedincity.org.nz/

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Margins would be squeezed, Smith added, as the repricing of bank risk in global markets continues to rise, pushing the average cost of wholesale funding higher. "Intense competition" for deposits would continue.

 

Does this bloke want to send a salesman around to my place to bid my dosh away from Public Trust? Hardly.

 

I have never had the experience of banks competitively bidding for my not so insignificant deposits.

 

In fact quite the opposite - they positively seem disinterested.

 

And I remain so while the spectre of risk surrounding Open Bank Resolution is not reflected in deposit interest rate returns.

 

These glib comments from the RBNZ are hardly encouraging:

 

Whilst there are differences between different classes of

unsecured creditors, they all have the same legal claim on

the bank. Each has freely invested in a private institution and

has enjoyed a return on that investment whilst accepting

the risks associated with the investment. Under the OBR,

it is expected that all unsecured creditors would be treated

equally with the same proportion of claims remaining frozen

for all depositors and creditors. The only difference in

treatment will be the speed with which each class of investor

is able to access the unfrozen portion of their claim.

 

 

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We seem to talk bout the debt problems as though it were some natural calamity. What we forget is that it invovled a massive wealth transfer.

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