Recent events remind Gareth Vaughan of a conversation several years ago with ex-ANZ NZ CEO David Hisco when he floated the idea of a Minister for ANZ...

Recent events remind Gareth Vaughan of a conversation several years ago with ex-ANZ NZ CEO David Hisco when he floated the idea of a Minister for ANZ...

By Gareth Vaughan

It happened at an ANZ New Zealand event some years ago. I found myself talking with CEO David Hisco. The subject was the risky but very successful shifting of ANZ to sister bank the National Bank's IT platform.

Hisco noted that because the move came at a time the Novopay teachers' pay debacle was in the news, ANZ made final 11th hour checks for reassurance the massive project could go ahead without a major hitch. Can you imagine, he suggested, what would have happened if we'd got it wrong? 

That was a scary question as much had been at stake. It's likely the country's payments system would've been a mess had ANZ, the country's biggest bank, botched the move. At the time Steven Joyce was Minister Responsible for Novopay. I, tongue in cheek, suggested to Hisco that had ANZ cocked up, we might've had a Minister for ANZ. I swear Hisco went pale at this suggestion.

Recent events involving ANZ have reminded me of this conversation. ANZ has been censured by the Reserve Bank for both using, and having its directors sign off on, an unapproved capital model for a period of five years. And then there's Hisco's bizarre and bungled departure, which we're told was due to him charging personal expenses for wine storage and chauffeured cars to ANZ as business expenses.

There was also a little reported requirement for ANZ to increase its minimum regulatory capital requirement by $800 million after the Reserve Bank reviewed the bank's capital adequacy on farm lending and residential mortgage lending. 

ANZ's moral authority and public standing is probably the lowest it has been since the country's big four banks were battling the IRD in a multi-billion dollar structured finance transaction tax dispute a decade ago. Indeed it's beginning to look like an annus horribilis for ANZ.

So what exquisite timing then that the Reserve Bank released the submissions it received on its proposals to increase bank regulatory capital requirements this week. Of course journalists, who normally probably wouldn't have bothered to even look at the submissions, rushed to see ANZ's with their interest piqued by executive largesse and ex-PM John Key's role as chairman. 

In no surprise to this observer Aussie parent the ANZ Banking Group says capital increases of the magnitude proposed by the Reserve Bank would see it "review and reconsider" the size, nature and operations of its New Zealand business. ANZ Group CEO Shayne Elliott, a New Zealander, foreshadowed this in early May when he said the Reserve Bank's capital proposals would come at a cost, and ANZ can't expect its shareholders to "unreasonably subsidise" this.

This has led to renewed speculation that ANZ or one of Australia's other major banks, may look to float their New Zealand subsidiary on the share market or sell via a trade sale.

Here, it's worth recalling what Hisco told me about these options, again in early May.

"If you work it out you find it's actually quite difficult for that to occur. The [share] market wouldn't actually be able to absorb it so you couldn't float it in New Zealand. So then it comes down to whether there's somebody else out there in the world that wants to buy a bank in New Zealand. And last time I looked [with] National Bank, Lloyds wanted to get out and they sold it to us. I don't know what's going on on the other side of the world these days but everyone seems to have their own problems. So I'm not sure how practical that really is," Hisco said.

Something else to keep in mind when considering an Aussie bank selling down, or out of, its kiwi subsidiary is if this is done because of the Reserve Bank capital proposals going ahead, they're selling a business whose future returns will be reduced. Potential buyers ought to understand this, potentially leaving the Aussie shareholder facing a haircut on its valuation of that kiwi subsidiary.

None of ASB, BNZ or Westpac NZ's parents, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation, are thrilled with the Reserve Bank's capital proposals either. 

Indeed, here's a comment from the Westpac Banking Corporation's submission: "If the Australian banks are indeed faced with a significant fall in the returns on equity from their New Zealand banking subsidiaries, they will face a number of choices including whether to reduce the size of the business, demerge, or sell."

There's also talk of the Aussie owned banks reducing exposure to, and increasing interest rates paid by, SME and farmer borrowers as a result of the Reserve Bank capital proposals. Here they'd need to be careful this wasn't seen as helping prop up their $5 billion in annual profits, or helping fund their senior executives' flash Auckland houses. Cabinet's recent approval of the Farm Debt Mediation Bill, which would require creditors to offer farmers who default on payments mediation before taking enforcement action, shows how politicised the rural debt issue is.

Of the big four Aussie banks ANZ has far and away the biggest exposure to New Zealand at about a quarter of group earnings compared to about 10% at the other banking groups. Thus it's ANZ that has the most to lose.

Meanwhile the Reserve Bank has ordered independent reviews of both ANZ's regulatory capital modelling and director attestation process, and the Financial Markets Authority (FMA) is looking into the now infamous house deal between ANZ and Hisco's wife from a related party transaction perspective. And don't forget the Supreme Court has opened the door for the FMA to potentially take action against ANZ on behalf of investors in the Ross Asset Management Ponzi scheme, which ANZ banked.

All of this is undoubtedly tarnishing the ANZ brand in New Zealand. How much of a hit it can handle, and what else may come out of the woodwork remains to be seen. But one thing's for sure. The ANZ NZ hierarchy won't be able call on the famous National Bank horse to ride their way out of trouble on. They sent that popular brand to the knacker's yard in 2012.

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21
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Didn’t they have a Minister for ANZ running the country for a decade?

13
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Many would say he is still pulling the strings through his loyal subjects in the opposition.

Some might be questioning the value of revolving doors right now.

ANZ nor any the other Big 4 banks should have been allowed to purchase National Bank as it effectively means our financial system is regulated from Australia. Unless ANZ or another Big 4 wants to sell it is unlikely that this will change. For a bank to come in and start from nothing and be a significant player is very unlikely.

Banks like the TSB will be picking up customers from the taste of the Aussie banks blackmail threats if we make them have the same capital requirements as our local banks. They're probably working on a good billboard right now, it wouldn't be hard.

If they did sell off ANZ, Westpac NZ etc it would be the first decent size local IPO in years reversing the trend of NZ companies delisting in favour of more liquid exchanges. This wouldn't be a bad thing.

... true , and the NZX desperately needs more depth ... we keep losing companies to foreign takeovers , or to delisting in favour of listing on the ASX ...

My understanding is that Lloyds sold National Bank, not because it was unprofitable, rather they sold it because of their wider financial difficulties. They chose National Bank because it was one of their best performing assets, not one of their worst. So what’s Hisco says is disengenuous.

Has anyone crunched the numbers on the change in return ANZ is likely to see. I just don’t see how in this low interest rate environment (interest rates being a sort of opportunity cost to other opportunities) they can claim they can get better returns elsewhere. Also, the problem they have is they can’t sell now because the impact of the proposal will be baked into the price.

I don’t doubt the return will be lower than the status quo, what I doubt is that ANZ’s shareholders would really want to gradually retrench their NZ position and accept gradually lower returns or sell the whole NZ operation.

Might be time to investigate why this lot shouted "fire" in respect of RBNZ's proposed capital adequacy rules? Are such conglomerates faced with higher interest rates and demands to raise their equity levels or both? Failure to meet such measures in a timely manner compounds the issues underlying any possible impositions issued in the first place.

Dairy Holdings, Fonterra's biggest supplier-shareholder, has warned of a "perfect storm" developing if the Reserve Bank's capital adequacy proposals go ahead in their current form, and said some banks were already charging a margin in anticipation of the change.

The family-owned company, which has 75 farms in the South Island and 50,000 cows, has made a case for the new rules being introduced over a longer time span than the proposed five years, or with at least an option to extend the time period if required.

Link

"..infamous house deal between ANZ and frau Hisco" -

Wait on -The house was sold at a price based on market valuations at the time.

I would suggest theres a valuation company associated with that deal who doesn't want too much sunlight on it and their relationship to Arawata / ANZ.

Indeed are valuations trustworthy? Especially those supplied by a vendor. Although it certainly wasn't the case in Casa Hisco I have been to some open homes in the early 2000s where in the American manner the "kindly vendor" supplied valuation was way too high and then you find the vendor had a "financial relationship" to the valuation firm supplying the "independent valuation". For those not knowing local prices this valuation then set the base price in their minds. Kiwi-as

What is the ownership structure of the 4 major Aussie Banks ? How much is owned by American funds/banks ? The ultimate owners of the major NZ Banks may not be Aussies ?
Who will actually decide about selling the NZ arm of the ANZ ?
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=121...

There is no chance they sell ANZ. This is all just BS.

Toys out of cot stuff. One questions how PR vetting let it out the door.

Suggesting they have thrown their metaphorical toys out of the cot gives them too much credit. Technically it is a tantrum announcing their intention to throw their toys out of the cot. Actually it’s more like a parent threatening to put their kids out of the car on the side of the road, everyone knows the parent will never follow through.

You obviously never had a father like mine - carried out the threat on more than one occasion.
Definitely character building for a young lad a couple of miles from home. At least I figured out the way home.
TP

The amazing thing is that while all this was happening their PR spokesperson decided to signal displeasure towards Maria Folau, thus rousing the interest of the netball/rugby following segments of NZ to all things ANZ related. The ANZ story about greedy bankers and our ex-PM was able to gain a much wider audience.

The Maria Folau debate was a nifty strategy by the ANZ to divert attention from their Hisco fiasco ...

.. thankfully Netball NZ saw through it , and left her to do what she does best , get beaten by the NZ Mens netball team

10
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Hands up if you think JK is the guy to straighten out ANZ management culture.

He's an EX FX dealer for gods sake. For them a long term view means letting your positions run till late on Friday. As far as having any social well being they make lawyers and grave robbers look good.

Smalltown your wrong re the late Friday- It's Fri midday at the latest cos after that it's lunch, (customer paid for), drinks all afternoon, then......

If they threaten to leave we open the door. ( but really they would have to be dragged kicking and streaming through it)

They killed the horse. It was years ago, but still unforgivable.