On the quiet, ANZ has pulled off an historic corporate restructure, mimicking Macquarie Bank’s “good bank, bad bank” model, in a move designed to expand outside banking into riskier more profitable business while quarantining the bank. Callum Foote reports.
Why so furtive? Will Australia’s other Big Four banking majors follow suit and march into new business areas?
Just before Christmas, as the finance world was relaxing into festive season, ANZ Banking Group filed a scheme of arrangement with the Federal Court to overhaul its corporate structure; the aim was to shift into non-banking activities while insulating the bank itself from the risk of making new and exciting corporate bets.
Few were watching. ANZ needed Court approval and they required shareholder approval too, but there was no fanfare whatsoever from entrepreneurial Kiwi chief executive Shayne Elliott and his team, no “talking the deal up” despite what may be momentous ramifications for Australia’s banking sector.
There was one small shareholder keeping close tabs though. Carolyn Thomson, an investor in a loan dispute with the bank, says they changed the date of the Court hearing at the eleventh hour, failed to properly notify shareholders and “rushed it through” with the only public notice buried on page 15 of the hard copy of The Australian newspaper.
“The Court approved the meeting on October 26 and made an order that the second court hearing (after voting approval) would take place for the Court to approve the scheme on or after December 22,” Thomson told MWM. “Without any formal notification to shareholders ANZ had the Court vary the Court order and bring the date of the second Court hearing forward to Monday December 19.
If the aim was to avoid the annoyance of shareholders and press attending the meeting, ANZ’s top brass succeeded.
“I picked this up from the Court judgment published on December 20, where Justice Michael O’Bryan stated that no shareholders turned up at Court to oppose the approval. That is because it was not widely publicised, not even mentioned at the Scheme of Arrangement meeting on December 15.”
Okay with Morrison and Frydenberg
ANZ had been secretly working on the deal for years under a taskforce name ANZx. There were 800 people working on an apparently digital project in a separate building to the bank head office. It was not until March 1, 2022, that the word “separation” appears to have been used in connection with ANZx.
Then, on May 4 last year, just a few weeks prior to the Federal Election, the bank advised the ASX that of its NOHC structure (or Top Hat) was a thing. Few apart from regulators, advisers and bankers in the know would have realised the ramifications at that point; that the bank was teeing up a split to expand into non-bank activities but then Treasurer Josh Frydenberg must have been briefed earlier than that.
Current treasurer Jim Chalmers, it must be assumed, would have seen it or been advised about it in his briefing papers on taking the new ministry
So, it is a Frydenberg era deal, kept under wraps from the public – and even if technically disclosed to the ASX via the language of NOHC and investing in bank “adjacent businesses” was never materially disclosed in terms of his being a publicly subsidised operatar – with a the privilege of a banking licence – now moving up the risk curve.
The RBA had only just stopped its bond buying a couple of months earlier than the May NOHC disclosure so the public stimulus for the financial sector was still afoot and the idea of a bank restructuring to head up the risk chain must surely have been a politically difficult thing to come clean about at that point.
Good bank, bad bank
ANZ declined to respond in detail to questions in time for publication of this story, yet we can only speculate as to why such a momentous deal has been kept so under wraps. The restructure to set up a Non-Operating Holding Company (NOHC) means that ANZ can still adhere to the strict banking requirements imposed by prudential regulator APRA which are there to safeguard the banking system while its new division is free to make riskier corporate bets.
The move by Elliott and his chairman Paul O’Sullivan mimics Macquarie Bank, which was compelled by the government in 2007 – in the wake of its highly leveraged spray into new business areas globally – to separate the bank by creating an NOHC. Even then, as the Global Financial Crisis hit the following year, Macquarie Group’s massive leverage had it going cap in hand to the government for assistance.
The MacBank structure was nicknamed “good bank, bad bank” by advisers involved with the deal at the time, reflecting the dual risk profiles of the entities. So it was that Macquarie Group was able to keep on with its banking activities in one part of the group and invest in everything from French toll-roads to US gas assets, to UK water utilities in the other.
Shareholder upside but how about taxpayers?
Is the good bank bad bank structure good for taxpayers though? Before the GFC, Australia’s banks were not explicitly guaranteed by the Commonwealth. The financial crisis saw the advent of sovereign bond guarantees, depositor guarantees, protection from short-sellers and the Committed Liquidity Facility – effectively a Reserve Bank operated bail-out mechanism to protect the banks should they get into trouble.
Like no other businesses, the business risk of the banks was now underpinned by the public. Then Covid, which saw a deluge of liquidity showered on the sector via government stimulus measures.
It is likely Team ANZ is well awake to the public sensitivities of, on the one hand, enjoying the privilege of a banking licence and the protection of the Commonwealth while, on the other hand, exploiting this cherished position to turbo-charge profits by romping into non-bank business areas.
Regulators have been taking a keen interest as ANZ had already lobbed a $5b takeover bid for Suncorp Bank on the table which had raised competition concerns. And a proposal to takeover MYOB had been junked by the ACCC last year.
Best of both worlds
ANZ had announced its intention to establish the NOHC structure as early last year, citing “greater flexibility and the potential to create additional value for shareholders over time”. It is not known yet publicly when they raised it earlier with Federal Treasury but surely must have as a matter of courtesy.
According to Group General Council Ken Adams, writing in the bank’s Blue Notes news service, “The new structure can help ANZ develop a holistic digital banking ecosystem including adjacent, non-banking services, platforms and partnerships that complement ANZ’s core banking business and better meet customers’ needs in the digital age”.
This is likely alluding to some sort of venture with Apple or other digital operators. Apple’s incursion into the payments system has been hugely successful
The new structure will allow ANZ to do anything with its new business arm without the worry of being regulated like a financial institution. Adams, for instance, gives the example of ANZ purchasing a soft drink company.
ANZ has ignored questions put to them by MWM regarding whether the structure permits related party transactions between the two arms of the bank. In the case of Macquarie, there were strict Chinese Walls enforced but these have been eroded somewhat. In any case, if the listed parent company owns both the bank and the holding company its risk must be protected.
An ANZ spokesperson directed MWM to ANZ chairman Paul O’Sullivan’s remarks at the ANZ scheme meeting on December 15 in which he said, “It’s also important to note that a non-operating holding company is not new.
“It is used by many leading financial institutions including Macquarie Group and Suncorp Group in Australia and Bank of America, JP Morgan, HSBC and Barclays internationally.”
Besides ANZ’s government guarantees via the Financial Claims Scheme, which protects depositors of up to $250,000 per account holder per authorised deposit-taking institution, and the liquidity guarantee, during the pandemic the financial sector was the beneficiary of the RBA’s Term Funding Facility (TFF) through which a total of $188b was lent to financial institutions at super low-interest rates.
Of this $188b, $83b was lent at 0.25% interest with the remainder lent at 0.1% interest in an attempt to flood the financial sector with liquidity. The banks mostly parked the funds on deposit with the RBA.
As a previous MWM investigation has revealed, the banks were able to store this money in the RBA’s Exchange Settlement Accounts which are now paying out 3% per cent, offering institutions like ANZ billions in risk-free profit. At one point, the RBA was lending to the big banks at 0.1% while paying them 0.25% interest on deposit.
ANZ chair Paul O’Sullivan has yet to respond as to whether the bank may use its government backing to raise cheaper debt for its new non-banking activities.
ANZ remains an Australian company listed on the ASX, and the current board remains to oversee the new structure.
Transcripts from the bank’s AGM held on the December 15 show that the documents that the bank sent to shareholders who asked for them were insufficient. According to ANZ shareholder Luigi Bocello, the documents which were provided to him didn’t adequately outline the scheme.
The vote received overwhelming support from 90.62% of ANZ shareholders, representing 99.17% of the votes cast. But were they sufficiently apprised of the detail? And with such a thumping endorsement of Shayne Elliott’s vision to take ANZ into a brave new world of higher, juicier profits, were the bank and the corporate media not singing his praises from the rooftop.
A strangely furtive affair
Says shareholder Carolyn Thomson, who lost her house two years ago after losing a dispute with a supplier in the Queensland district court: “At the Scheme of Arrangement Meeting and the AGM, shareholders let Paul O’Sullivan know that they had not received the Explanatory Memorandum and he said that they would look into it. Even though this was acknowledged, the vote was allowed to proceed – it should not have proceeded.”
The reason for the last minute rush appears to have been APRA approval which came last October just before the Scheme was announced to the ASX.