Falling profit and reputation

ANZ has recorded profit of $1.825 billion for the year to September

30, an 8 per cent drop on 2018. Acting chief executive Antonia Watson said while the company’s full-year result reflected a solid underlying performance, it had been a challenging 12 months for ANZ New Zealand reputationally.

It has had a censure from the Reserve Bank and significant fallout from the departure of former chief executive David Hisco.

‘‘While reviews by the FMA and Reserve Bank concluded the widespread misconduct issues in Australia were not found in New Zealand they helped us take stock of where we are today, what we’re doing well and what we could do better for our customers, and we’re making changes,’’ Watson said. ‘‘Beyond those reviews we have faced our own challenges.’’

Hisco left in June after a review of his expenses found he had mischaracterised about

$50,000 spent on wine storage and chauffeur-driven cars.

It was also revealed that the bank had purchased a house for Hisco to live in for $7.55 million in

2011 and then sold it to his wife for $6.9 million in 2017.

The bank received a censure from the Reserve Bank for the way it calculated its risk capital.

‘‘Despite our tough year our people have continued to put our customers first every day,’’ Watson said.

She said she had been most proud of the way that, with all the distraction going, ‘‘which can be painful to see, have kept doing their best for customers’’.

She said the Hisco house sale was the subject of a Reserve Bank review that was still under way so she did not want to comment until that report was complete in December. The FMA said it believed it was a related party transaction, although it was not disclosed as such.

Watson said there were always things to learn when things went wrong. ‘‘We’ve certainly made changes to our processes and things when appropriate and will continue to be open and transparent.’’

Customer deposits were up 5 per cent, and gross lending up 4 per cent. ‘‘Strong competition in the home lending market combined with official cash rate cuts saw interest rates drop to the lowest levels on record, providing a good opportunity for first-home buyers to enter the market and for home owners to pay off as much debt as possible.’’

She said the bank had done some work on what the implications would be of negative central bank rates, but said they were unlikely to flow through to negative retail rates.

There was a funding gap between deposits coming in from customers and demand for loans but she said that was currently being met by institutional customers.

Banking commentator David Tripe, of Massey University, said it was reasonable to expect that bank profits would not be ‘‘roaring up’’ this year. ‘‘We might well see others with falling profits when they have their announcements next week.’’

He said the profit would still give a return on equity of about 10 per cent. New Zealand’s big banks are some of the most profitable in the world on that basis, according to data from the Reserve Bank.

Remediation and increased regulatory requirements contributed to a 5 per cent increase in operating expenses.

Watson said ANZ New Zealand awaited the outcome of the Reserve Bank of New Zealand’s capital review, due in early December.

It was clear that more capital would be required from banks, she said, and there was nothing wrong with wanting a safer banking system. The question was how much more would be required.

ANZ had cut dividends from about 80 per cent of earnings to 20 per cent in anticipation of needing to shore up its reserves, she said.

She said the bank’s submission on the Reserve Bank’s proposals had been mischaracterised, and it was not threatening to leave New Zealand if the central bank’s proposals were enacted.

It might consider where lending was done, she said, but it would not quit or scale back significantly.

ANZ New Zealand’s funds under management grew 11 per cent to $34.1b. It remains the largest KiwiSaver provider with 14 per cent growth to $14.8b under management.

Watson said the bank would announce Hisco’s replacement in December.

‘‘It has been a transformative year for our industry.’’

Acting chief executive Antonia Watson