ANZ CEO’s tricky overhaul reaches end of beginning

By Antony Currie

Nuno Matos has just capped a torrid first four months as CEO of A$98 billion ($65 billion) Australian lender ANZ ANZ. On Monday, the former HSBC executive and the board agreed the bank will pay a A$240 million fine to settle chargesof "unconscionable conduct" in its investment bank and "widespread misconduct" in its retail arm. It attempts to draw a line under years of problems, days after he cut 8% of the company's staff. But fixing the company's culture and boosting its earnings will take time. It doesn't help that ANZ Chair Paul O'Sullivan looks exposed.

The settlement, which is the largest the Australian Securities and Investments Commission has ever levied on a single company, is useful for Matos. It reminds employees of company-wide problems that predate his arrival just as he pushes 3,500 of their colleagues out the door. Not that their memories should need jogging: ANZ's return on equity lags its peers and its stock has long traded at a discount to its three main rivals. It's currently at 1.3 times book value for the next 12 months, per LSEG. National Australia Bank NAB and Westpac WBC sport multiples of around 2 times book, while Commonwealth Bank CBA is at a heady 3.5 times.

Reducing staff numbers and admitting to wrongdoing are necessary first steps for Matos. But they also take a toll on staff morale - not helped by some unlucky employees finding out about their impending departure when human resources mistakenly sent some emails too early. Nor will these initial actions do much to boost the bottom line. That will probably be a multi-year effort; Matos is expected to unveil this part of his strategy at an investor briefing next month.

Moreover, fines alone tend not to draw a line under regulatory problems. U.S. lender Wells Fargo WFC is a case in point. In 2016 it was fined $185 million as punishment for creating millions of fake retail banking and credit card accounts, which soon cost longstanding Chair and CEO John Stumpf his job. But within a year his lead independent director and then replacement as chair, Stephen Sanger, had also gone.

A similar fate may yet befall ANZ's O'Sullivan, who is up for re-election at the company's annual meeting in November. He has run the board since 2020, a year after he joined as a director. That means he was in charge when most of the malfeasance the bank has just fessed up to took place. His departure would show that the rest of the board - most of whom have joined since 2023 - is enforcing responsibility across all echelons of the bank. And it would allow Matos' tricky overhaul to properly reach the end of the beginning.

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CONTEXT NEWS

ANZ on September 15 admitted to engaging in "unconscionable conduct in services provided to the Australian government" on a A$14 billion ($9.33 billion) bond deal and to "widespread misconduct" in its retail bank in a A$240 million, roughly $160 million, provisional settlement with the Australian Securities and Investments Commission. It's the largest fine ASIC has imposed on a single company.

In addition to the bond deal issue, ASIC also alleged that ANZ's investment bank misled the federal government about its trading turnover in government bonds for nearly two years. The bank paid a total of A$125 million to settle these two charges.

The rest of the fine falls on ANZ's retail bank, which ASIC accused of failing to respond to 488 customers who submitted financial hardship notices; failing to pay bonus interest to some customers who opened certain new accounts; and failing to refund fees charged to thousands of deceased customers. ASIC says that some of this misconduct dates back to 2013.

ANZ CEO Nuno Matos, who joined from HSBC in May, said: "The failings outlined are simply not good enough and they reinforce the case for change."

The settlement is subject to approval by the federal court.