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Australia's ANZ to sell wealth, insurance business as profit falls

Thursday, November 3, 2016 - 12:53

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Australia and New Zealand Banking Group (ANZ) on Thursday said it will sell its Australian insurance and wealth division to raise cash, as it posted its weakest profit in five years and warned that a soft jobs market could crimp growth.

[SYDNEY] Australia and New Zealand Banking Group (ANZ) on Thursday said it will sell its Australian insurance and wealth division to raise cash, as it posted its weakest profit in five years and warned that a soft jobs market could crimp growth.

Coming on top of a decision to shrink its Asian presence, the announcement signals a broader retreat to ANZ's traditional commercial retail strengths in the face of shrinking margins and rising political pressure on the Australian banking sector.

Rivals National Australia Bank and Macquarie Group have also divested insurance assets recently, as Australia's banks rush to free up capital to boost returns and meet increasingly onerous regulatory requirements.

"We recognise the current outlook for banking is dominated by headwinds. To be frank we need to act with more urgency than others due to our historical business mix," ANZ Chief Executive Shayne Elliott told analysts on a call.

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"We want to simplify our business and focus only on those areas where we have a long term competitive advantage."

Australia's third-largest bank by market value reported a lower-than-expected cash profit of A$5.9 billion (S$6.26 billion) for the year ended Sept 30, 18 per cent down from A$7.2 billion a year earlier. The figure, the lowest since 2011, excludes one-offs and non-cash accounting items.

It was affected by A$1.1 billion of restructuring charges as well as a 62 per cent rise in bad debts to A$1.96 billion, including an increase in provisions for households and businesses exposed to the decline in the resources industry. ANZ forecast it will report a similar level of provisions this year.

Mr Elliott said the bank had a cautious outlook and would not target above-market growth in the mortgage market due to fears about the impact of rising underemployment and stagnant incomes in Australia.

"We just want to be a little more cautious than we have been in the past," he said.

"I think we are signalling today, if that means we give up a little bit of market share, that is okay."

ANZ shares were trading 0.6 per cent higher on Thursday in a flat market.

RAISING CASH

The potential sale of all or part of the wealth and insurance division could release up to A$5 billion, Mr Elliott told Reuters in an interview in Hong Kong on Monday.

Reuters in May reported ANZ was exploring the sale of the division and could attract buyers from Japan and China.

Mr Elliott said on Thursday that ANZ had already received many informal expressions of interest.

"They are all of the people you would suspect are the global leaders," he said, without naming any.

While the move to sell was driven by the need to reallocate capital to higher-returning areas, political scrutiny had "possibly" reinforced the decision, he added.

The financial planning and life insurance industries have been sources of scandals that have shaken the Australian banking industry in recent years and led to calls for a sweeping judicial inquiry.

"ANZ's wealth strategy has been a bit of a mess over the last several years," Morningstar analyst David Ellis said in a phone interview.

"I suppose this is a way of cleaning it up and simplifying it and reducing risk."

Under Mr Elliott, ANZ has been shrinking key business lines including low-returning institutional loans and its exposure to retail and wealth banking in Asia as it looks to boost its return on equity, the lowest of Australia's "Big Four" banks.

ANZ cut 3500 staff, or 7 per cent of its workforce, over the last year.

The bank said it would pay a final, fully-franked dividend of A$0.80 a share, in line with it interim payout announced in May.

REUTERS

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