ANZ's Kiwi problems on the radar for big investors

Tuesday, 25 June 2019

Heavyweight Australian fund manager and ANZ Bank shareholder Paul Xiradis says the bank's recent problems in New Zealand are a concern, after the Kiwi central bank this week ordered ANZ's NZ arm review its capital models.

ANZ NZ chairman Sir John Key has been resisting calls for him to resign from the bank after it was censured for failing to correctly model capital risk,

Amid a wave of pressure on ANZ across across the Tasman, and Monday's announcement of a review into its compliance with parts of the Reserve Bank of New Zealand Act, Xiradis said there was no doubt regulators were being 'really harsh' on any slip-ups.

Former chief executive David Hisco left ANZ after concerns he 'mis-characterised' personal expenses including the use of corporate chauffeured cars and wine storage

Deputy Prime Minister Winston Peters says if he was Reserve Bank governor he would have asked Key to quit.

'There's no doubt I think all regulators are being really harsh on everything now. If there's any anomaly, or they pick up something which hasn't been done right, they're coming down pretty hard,' the executive chairman at Ausbil Investment Management said.

* The fall of ANZ chief executive David Hisco

* ANZ completed probe into Hisco's expenses before staff were told of sick leave

* Finance minister says ANZ 'has questions to answer' about CEO departure

* ANZ chief executive leaving following review of personal expenses

* Six times ANZ has been in regulators' naughty corner**

'If that's the case, they'll take it upon themselves to correct it,' Xiradis said. 'It is a concern but it's something not to be… I'm not overly concerned about it.'

The prominent fund manager backed the bank's current Australian management team led by chief executive Shayne Elliott, which he said had been 'very upfront' in dealing with issues facing the bank.

ANZ NZ chairman Sir John Key on Monday said it would commission the independent reviews after speaking with the Reserve Bank of New Zealand (RBNZ), as it wanted to provide assurance that its capital models and directors' attestation processes were 'robust' and 'prudent'.

ANZ has in recent weeks endured a torrid run, after the the RBNZ imposed a capital penalty on ANZ over a 'persistent failure' in certain controls in mid-May.

Last week, it announced the abrupt departure of former chief executive David Hisco after he 'mis-characterised' personal expenses including the use of corporate chauffeured cars and wine storage. Hisco believed he had authority to spend the money, Key said.

Former prime minister Key has also faced calls to resign from Deputy Prime Minister Winston Peters, and the former chairmain of Bank of New Zealand, Kerry McDonald.

ANZ is the most exposed to New Zealand of the big four banks, with more than 20 per cent of ANZ's total profits coming from its Kiwi business in the first half of the financial year.

Ausbil's active equity fund had about A$68 million of its holdings in ANZ Bank at the end of May — which is relatively small compared with ANZ's A$80 billion market capitalisation — but Xiradis' comments show ANZ's New Zealand woes are attracting attention from Australian institutional investors.

The run of recent problems in New Zealand comes as all of Australia's big four are facing the prospect of a sharp lift in how much capital they will need to hold in their NZ businesses, under proposed changes from the RBNZ.

Regal Funds Management portfolio manager Mark Nathan says most important issue from investors' point of view is RBNZ's plan to hike capital requirements for all banks.

'The thing that really makes a difference to the ANZ business is the capital requirements,' Nathan said.

'Bank investors are definitely worried about that and it will definitely have an impact, but I think the impact will be fairly long-dated. I think it's just another negative issue for the bank sector as a whole,' he said.

The Australian Prudential Regulation Authority declined to comment on ANZ's independent reviews of its capital models and attestation processes in New Zealand.

Clime Asset Management's managing director John Abernethy, another ANZ shareholder, said the company looked 'relatively cheap,' and while the fund was 'watching developments closely' across the Tasman he was not overly concerned.

Asked about ANZ's recent problems in New Zealand, Abernethy said banks were facing 'issues' in many parts of their businesses as a result of regulators turning up the heat, after previously being too lax.

'Australian and New Zealand regulators are sort of moving after years of being inactive. The things we are seeing are the result of inactive regulators following the GFC — I think there were some fairly lax behaviours,' Abernethy said.