By Eric Johnston and Mark Hawthorne
THE ink was barely dry on ANZ’s $687 million move on a collection of banks stretching through Asia, when a long-serving staffer in one of ANZ’s newer mortgage belt branches in Melbourne’s north considered the deal.
She had spent weeks fielding complaints from customers as ANZ struggled to deal with a surge in mortgage applications spurred by the first home buyers grant.
Some clients had to wait as long as a fortnight to hear whether their applications had been accepted.
As non-bank lenders have fallen victim to the global financial crisis, the big four banks are nearly the only game left in Australian lending.
It is a massive opportunity for a bank attuned to its market but, according to the ANZ staffer that BusinessDay spoke to, ANZ is not that bank.
Observing the state of her bank’s operations at home, she considered its customers overseas and said: “You’d hope they’re not in a hurry to sign up for a home loan in Singapore.’’
ANZ, a bank that built its reputation serving customers that other banks left behind, could be leaving its customers — and it staff — a little less satisfied.
This year, for the first time in nearly a decade, ANZ didn’t pick up the industry prize for ‘‘Mortgage Lender of the Year’’. The gong, a centrepiece of its marketing, went to the smaller rival St George, itself on uncertain ground after being swallowed by Westpac.
ANZ’s customer satisfaction figures, once the envy of rivals, have started to sag. Its customers are still happier than those of Commonwealth Bank, National Australia Bank and Westpac, but Roy Morgan research shows its customer satisfaction scores fell from a peak of 81.2 per cent in December 2007 to 76.3 per cent in June. The gap to second-placed Westpac — at 74.6 per cent — has narrowed.
ANZ’s three bigger rivals all cut penalty fees in the space of a week, but ANZ is yet to follow suit.
And then, there was ANZ’s now infamous move to back Opes Prime and enter the securities lending business — a decision that has led to nothing but trouble for the bank’s reputation.
Under former chief executive John McFarlane, the bank conceived an ambition to take bigger steps throughout Asia and to grow in the new heart of the world economy.
That aim was bolstered by the recruitment in October 2007 of Mike Smith, HSBC’s Asia specialist, to succeed McFarlane and was further punctuated by this week’s acquisition of a string of Royal Bank of Scotland assets.
This week’s move was just the beginning — Smith says ANZ still has capacity for ‘‘two or three’’ similar-sized deals. The plan is for Asia to contribute nearly 20 per cent of the bank’s earnings by 2012 — double what it was when Smith took charge. He also won’t rule out making a move on foreign banking assets within Australia, if he can bypass competition hurdles.
It’s a lofty goal, but staff in Australia are wondering whether the local operations will be left behind in the push to expand through the region.
But despite the woes, and the worries, Smith oozes confidence.
When he sat down with BusinessDay this week, Smith rejected the assertion that Australia was being left behind. He views ANZ’s move into Asia as pure logic, though he admitted he needs to do more to show how the pieces of the strategy fit together.
“The key for the staff here is to really understand that the regional strategy is not an Asian strategy, it’s a regional strategy based on our strongest franchise, which is Australia,’’ he says. ‘‘Retail is a critical part of our business. Its an incredibly important annuity generator. It’s very stable. I love going to the branches. We have great people.”
While ANZ has made much publicly of its dedication to its Asian strategy, Smith says most of his time is spent on Australia – overhauling the business banking unit and ironing out long-term problems in institutional banking.
“Ironically, Asia is not taking up very much of my time, it comes in spurts,” Smith says.
If ANZ succeeds in Asia, analysts believe its shares will trade at a premium to those of its rivals.
But some fear the super-regional strategy will take too long to work.
“If you want to invest in an Asian banking play, then why not go and invest with a bank that’s already there — HSBC [or] Standard Chartered. Why take the risk?” said one fund manager.
The short-term problem is that the Asian growth could be coming at a local cost.
ANZ averaged a 17 per cent share of new mortgage lending last calendar year, but has since slipped back to single figures.
It is being outpaced by National Australia Bank — the traditional laggard of the nation’s mortgage market.
And figures compiled by the Australian Prudential Regulation Authority show that since January ANZ has also lost ground to its major rivals in overall lending growth.
A big setback has been the departure of Australian retail boss Brian Hartzer, a man well regarded in the industry.
Smith can’t be faulted for that decision — 42-year-old Hartzer was passed over for the chief executive role in late 2007.
One senior executive at a rival bank said ANZ was no longer “as vigorous” on the local scene.
‘‘They started to build a very good retail banking franchise, it had the highest customer satisfaction rate of the majors and we all thought Hartzer had done a pretty good job,” the executive said.
‘‘Maybe they’re just not seeing it [the Australian business] as important," he said.
Among the greatest source of friction inside ANZ is what staff claim is Smith’s decision to dismantle the Breakout cultural change program that for most of this decade was at the heart of efforts to win over staff.
Initiated by his predecessor McFarlane, with some input from management consultants McKinsey & Co, the Breakout program focused on people.
It was unique. Staff who had left the bank were asked why. That resulted in some staff aged between 40 and 55 years of age returning on a part-time basis, swelling the experience level of every department. Breakout was viewed by insiders as giving ANZ a major competitive advantage. National Australia Bank commissioned a report on it, and overseas banks flew in staff to study ANZ’s cultural overhaul.
“ANZ’s culture pre-Mike Smith was such that great staff from the other banks were lining up to work at ANZ,” says one mid-level manager, who has since left the bank.
“Mike came in, called us ‘complacent and soft’, appointed a new head of HR from HSBC and got rid of the focus on culture and made around 20 cultural transformation experts redundant,” he says.
However, it is a matter of record that ANZ’s costs were blowing out under the Breakout culture, and the bank was lending too much money to risky ventures, such as Opes Prime. It also lost hundreds of millions of dollars getting tied up in complex credit trades, which were well beyond its expertise.
With Smith, a new culture is being ushered in, and it’s being ushered in primarily from HSBC and Citi, where many of the bank’s new managers hail from.
One executive says it’s “remarkable” that he now has to explain what he does to a new boss.
But Smith says Breakout had tended to become a veneer.
“It was all around the edge and it looked good, but did it actually touch the inner core? I don’t think it did. What I’m trying to do is to get those values into the very core of the organisation, the DNA”.
Smith says the Breakout program has morphed into “something different”. “But the principles of it are the same because I think the values system within Breakout is very good and we’ve tried to maintain that,” he says.
ANZ has recently introduced the ICARE program, with every employee issued a card outlining the ICARE ideals — Integrity, Collaboration, Accountability, Respect and Excellence.
Smith strongly rejects suggestions that along with his human resources manager, Susie Babani (one of his first hires from HSBC), he was trying to transplant the HSBC culture into ANZ. Rather, he says, he is developing an ANZ culture “which is appropriate for the organisation we want to be”.
December 5 last year was dubbed ‘‘Black Friday’’ by bank insiders, as hundreds of staff were given their marching orders. It was the first wholesale program of job cuts the bank had seen for years.
A second round of cuts early this year took total job losses past 1000 in Australian and a further 200 in New Zealand.
Executives and middle-management in Australia were hardest hit. . At the same time, ANZ’s Asia Pacific business added hundreds more roles.
ANZ was not alone among the banks in shedding staff, but the overhaul has resulted in a lot of internal pain.
“The restructuring was becoming ad hoc, there’s no method to it,” said one person affected by the overhaul.
Smith said it was natural for there to be a lot of displacement as a result of the restructure.
“Basically, we changed our operating model — which in a large organisation is a big thing to do — from being a product-based to a customer-based organisation,’’ he says.
“Let’s be realistic, it’s much easier to run a cosy culture in good times. I think the whole management cadre in Australia had 15 years of good times, many of them have probably not had to make those tough decisions that are actually quite normal,” he says.
‘‘Australia is not a consensus culture: it’s a very consultative culture. It’s very important that you bring people into the decision. They want to feel part of it. Once they feel part of it, they’re with you”.