Analysis: Majors eager to return to ‘simpler’ times

On Monday morning, CBA announced plans to bundle a number of its wealth businesses and Aussie Home Loans together with its stake in Mortgage Choice and CountPlus into a new entity called CFS Group. This group will demerge from CBA and list on the ASX as a completely separate business. The bank is touting it as an “independent wealth management business”.

Divesting non-core assets is nothing new for Australian banks. In fact, it has become somewhat of a trend. In October last year, ANZ sold its wealth management business to IOOF for around a billion dollars.

This week’s decision by CBA, which will include a strategic review of CommInsure General Insurance (including a potential sale), will enable the bank to “enhance its focus on its core banking businesses in Australia and New Zealand and create a simpler, better bank”.

“Simpler” — where have we heard this word before? And why is a “simple” bank so sought after by Australia’s largest lenders?

It looks like CBA’s new chief executive, Matt Comyn, had taken a leaf out of Shayne Elliott’s playbook when he explained on a CBA in-house video interview that the group has “made a decision that the best thing for CBA shareholders is for us to focus on our core banking business and seeking to become a simpler and better bank” by demerging its wealth and mortgage broking interests.

Which would suggest that to include these assets under the CBA Group would make the bank more complex and worse off, perhaps?

Speaking to Mortgage Business following the announcement of ANZ’s 2018 half-year results, chief executive Shayne Elliott similarly noted that the big four bank plans to simplify its operations in order to navigate through increasingly challenging market conditions.

“Our strategy is about doing a few things and doing them well,” Mr Elliott said.

“In those areas where we have a natural competitive advantage, we want to do those things extraordinarily well — helping people buy and own a home; helping people start, run and grow a small business; and helping institutional customers move goods and money around the region.

“That’s what we want to do and we want to have the right network, people, products and platforms that allow us to do that.”

The ANZ boss admitted to Mortgage Business that the golden era of Australian banking is over.

We are now in a new era, which, according to NAB CEO Andrew Thorburn, requires a “fundamental change”.

“The next era for banking will be very different from the last era in terms of growth, business models, accountability and culture,” the CEO told investors following the announcement of the group’s half-year results last month.

It was during this announcement that NAB also revealed plans to sell its wealth subsidiary, MLC. Like his big four peers, Mr Thorburn sees the value in keeping things “simple”.

“We need to simplify the bank,” the NAB CEO said. “The complexity in the bank is just killing us. We need to simplify. And so what MLC divestment will do is enable us to have a simpler bank — and there’s huge opportunities in the bank.”

That leaves Westpac as a bit of an outlier. Anyone who has watched or listened to CEO Brian Hartzer discuss, or at times defend, the group’s wealth business, BT Financial, would have picked up on the vibe that this is not a division they are willing to let go of.

But reputational damage runs deep with the wealth arms of the big banks and Westpac has had to work hard to protect theirs.

Last week, the group announced that customers of BT Financial Advice will benefit from the removal of grandfathered payments attributable to their BT products.

Commissions received by BT planners by selling these products were a relic of the pre-FOFA days before 2013.

Five years on, more than 140,000 BT Advice customer accounts are still subject to these grandfathered payments, but BT has now decided that it is time to “draw a line under” these past arrangements.

Whether or not moves like this will simplify Westpac as an organisation remains unclear. It is also unclear if the bank, like ANZ, NAB and now CBA, wishes to become a “simple” bank.

What is crystal clear, however, is that three of the four majors have been unable to manage the complexities of running wealth businesses in the new era of Australian banking. The best solution has been to simply be rid of them.