ANZ Bank’s Shayne Elliott inherited an underperforming business when he took over as CEO in late 2015 and vowed to tackle the lagging Asian business and turn around the fortunes of Australia’s third-largest lender by market value.
Cut to now, he has exited capital hungry loans and businesses, reallocated capital to the higher return Australian retail and commercial business and taken an axe to expenses. The fruits of his work are beginning to show with the bank boasting its first “material” increase in return on equity, a measure of how efficiently it invests shareholder funds, since 2010. First half cash profits climbed 23% and expenses dropped.
The following charts show the main elements of Elliott’s restructure.
1. Capital Allocation: The capital allocated to the higher return retail and commercial business has climbed to more than half of the total up from 44% earlier. The institutional bank’s total risk weighted assets have reduced by $23 billion during the past 12 months.
2. Return on Equity: ANZ’s return on equity jumped to the highest level in almost 2 years thanks to the focus on Australian mortgages:.
3. Focus on Australian mortgages: ANZ has been one of the most aggressive in adding mortgage market share in Australia and New Zealand while reducing its Asian institutional banking exposure.
4. Cost cuts: ANZ has managed to cut costs for 12 months now and this time around pretty much every business contributed to the reduction.
5. Bad debt charge reduction: ANZ’s provision for bad and doubtful debts in the first half fell sharply to the lowest level since the six months ended September 2015.
6. Capital ratio boost: The bank managed to boost its common equity tier 1 capital ratio above 10% for the first time, thanks to focus on less capital intensive loans and sale of assets from Asia to New Zealand. The capital level is so comfortable that Elliott declared he is ready for the anticipated regulatory capital increases this year.