ANZ is now free to pull a Richard Branson and licence its brand to sell ANZ-branded financial products through its non-banking and non-financially regulated wing after regulators approved its restructuring, reports Callum Foote.
The shutters are still down. ANZ, APRA, the Australian Bankers Association, Treasury. Nobody wants to talk about a momentous regulatory change which will allow Big Four bank to expand into non-bank businesses.
Australia’s top banking lobbyist Anna Bligh, chief executive of the Australian Banking Association (ABA) declined to comment.
“The corporate structure of individual banks is a matter for those banks in consultation with the Regulator,” is the response from a spokesperson. This despite its professed commitment to “accountability” for the country’s banks. The stonewalling from ABA mirrors responses from other agencies and regulators. It seems nobody is prepared to publicly debate an issue of enormity for Australia’s banking sector.
At the end of last year, ANZ finalised its “good bank bad bank” restructuring, setting up a Non-Operating Holding Company (NOHC) so it can invest in non-banking-related businesses free of the financial regulations imposed on banking institutions.
This has opened the door for the smallest of the Big Four banks to engage in new business models. Such is the secrecy over ANZ’s plan, and indeed the secrecy from regulators, it is left to speculation to work out what chief executive Shayne Elliott and his team are up to.
One of these could be the leasing of the ANZ brand to non-ANZ-related businesses.
The master of this strategy is Richard Branson. The Virgin brand has been licensed out to over 60 brands including a gym chain. A prominent example here in Australia is Branson’s Virgin Money, a subsidiary of the Bank of Queensland. This might be the template under consideration for ANZ as it is now free to spread its wings and take on more risk.
Virgin Money is an almost entirely separate entity from the Virgin Group except for a licensing fee presumably paid by the Bank of Queensland to Virgin. Even Virgin Money’s BSB numbers, the six-digit number that identifies banks and branches across Australia, are for the Bank of Queensland.
Virgin Money’s bank accounts are those of Bank of Queensland so they are guaranteed by the federal government’s Financial Claims Scheme (FCS) which provides protection to depositors of up to $250,000 per account.
Incidentally, ANZ has a $5bn takeover bid on the table for Suncorp, which still faces regulatory risk as critics say there is little logic in reducing the number of banks, and therefore competition, by making one of the Big Four banks even bigger.
Similarly, banking industry observers told MWM that ANZ could team up with international investors to lend or sell ANZ-branded products through its unlicensed arm ANZx. ANZx could take a management and branding fee while not required to guarantee the product through the ANZ licensed bank.
A source who was involved with Macquarie Bank’s similar restructuring arrangement in 2007 says that it is:
Amazing it’s taken a 4 pillar bank so long. There would have been massive negotiations with APRA. My bet is it took five years to get off the ground with two of those years just to get all the APRA approvals.
Prudential regulator APRA has refused to answer whether any of the other four big banks have been in contact with it regarding a similar restructure.
APRA is owned by and funded by the banks, which is in itself a conflict, but also a strong incentive to get its supervisor job right. Although refusing to comment about the ANZ deal, APRA has imposed stringent conditions on the restructuring arrangement.
These conditions are designed to minimise conflicts of interest of board members and executives between the two wings of ANZ as well as the non-operating holding company (NOHC) governing them both.
The ANZ bank now must have at least one independent director who is not a director of the non-operating holding company nor a director of any company within the non-bank group. Nor can the chair of the non-operating holding company or the majority of its board be executives of any “Level 3 institutions”, which are corporations operating in more than one APRA-regulated industry.
ANZ is not permitted to start any businesses in the non-bank group without prior APRA consent. It must also now report quarterly to APRA and provide any and all information that APRA deems necessary.
There also cannot be anything in the non-bank group which is necessary for the banking business, and if anything developed in the non-bank group becomes crucial to the operation of the bank it must be transferred across immediately.
Anything “risky” must be held on the non-bank side of things.
ANZ must also ensure that all activities which are not required by the bank side are “financially and operationally separable from the Bank Group”.
ANZx no longer a secret: as it happened
In 2021, former Google Australia executive Maile Carnegie became ANZ’s Group Executive for Digital & Australia Transformation. She said that ANZ had been hard at work for two years on a project titled ‘ANZx’.
In October that year, ANZ announced it had 800 people working on ‘ANZx’ which at the time seems to be about digital businesses. ANZx is housed in a separate building, it is assumed by experts that these announcements meant that ANZ’s restructuring plan has been amber-lit by the regulators at this stage.
In November 2021, APRA and the Reserve Bank of Australia (RBA) announced new rules for capital structure with ANZ informing the UK regulator that they were working on it.
On March 1 2022, an ANZ announcement first mentioned the word “separation” in the context of ANZx. That puts the deal in Josh Frydenberg’s domain as it was prior to the May election.
Before the Federal Election
ANZ announces the non-operating holding company structure on 4 May 22, less than three weeks before the federal election tying the decision to Frydenberg’s tenure as treasurer.
This announcement says that the non-bank side of ANZ will have “banking adjacent” businesses and that businesses to be shifted to the non-banking side are code-named “1835i”.
The announcement also states that “Under this new structure there will be no impact on customers and no change to how ANZ’s banking operations are regulated”, the exact reason for the NOHC structure in the first place.
Treasury has yet to respond to queries but is currently preparing a reply.