Christopher Niesche: Why shareholders are nervous as ANZ eyes SunCorp

COMMENT

ANZ shareholders will be watching nervously over the bank’s planned acquisition of small Queensland bank Suncorp.

At first glance, the A$4.9 billion ($5.3 billion) takeover seems like a good idea.

Announcing the deal, ANZ
Chief executive Shayne Elliott said it would give ANZ more scale.

“As the smallest of the big banks, we believe a stronger ANZ will be able to compete more effectively in Queensland,” he said.

It will provide ANZ with 1.2 million new Queensland customers and propel it from bottom of the big four banks in home loans and household deposits to third, overtaking National Australia Bank. It will also strengthen ANZ’s position in the commercial loan market.

But it’s actually an expensive way for ANZ to regain lost ground. And it may not work.
Investors should ask why ANZ needs to buy another bank to increase its loan portfolios.

ANZ has lost a significant share of the mortgage market over the past four years and sees acquisition as the best way to regain market share.

ANZ’s current market share in home loans is about half that of the Commonwealth Bank of Australia. If it buys Suncorp, the combined entity will have 15.4% of the homeowner’s mortgage market and 15.4% of the investment mortgage market.

That would bring it back roughly the same market share as four years ago.

In other words, ANZ is spending nearly A$5 billion to buy back the market share it has squandered over the past few years.

While other banks have benefited from the housing lending boom during the COVID-19 pandemic, ANZ has retreated.

The bank had not anticipated the demand for home loans and was unable to approve loan applications as quickly as its competitors. Eager and impatient homebuyers turned to other banks instead.

The bank manually assessed each mortgage application submitted by mortgage brokers, who play a major role in the Australian market. It simply couldn’t compete with banks that could digitally assess and approve applications within 24 hours.

Earlier this year, ANZ launched its new ANZ Plus technology platform, implemented by 800 people at a cost of A$400 million, and said applications for standard mortgages could be processed in around three days , complex loans taking nine.

The bank aims to launch an online mortgage in 2023.

There’s a whole lot to be said about ANZ’s new technology and its ability to reduce mortgage approval times, just to keep up with the competition.

The question for ANZ investors is how confident they are in the unproven tech turnaround.

Even if effective, ANZ will still have a long way to go.

Westpac says it will launch a mortgage this year that can be approved in 10 minutes. The bank will initially offer the paperless mortgage to borrowers who are refinancing loans, receiving a salary or salary and owning at least 20% equity in their property. In other words, the least risky and easiest to assess clients.
They will roll out the paperless Accelerated Mortgage more widely next year.
National Australia Bank says it already approves about a third of its home loan applications within an hour.
Commonwealth Bank of Australia has launched its new Unloan digital mortgage, which it says takes just 10 minutes to apply for, although the bank says it can’t actually approve mortgages that quickly.
The “time of yes” is a key battleground in home lending for banks. They reason that by getting a loan approved in minutes, their customers are less likely to go to competitors for a comparison.
Lenders are gearing up to use fast turnaround times to retain and win new customers during the huge wave of loan refinances that will hit the banking industry next year. when fixed rate loans expire. Almost 40% of Australians with mortgages locked in ultra-low fixed rates in 2020 and 2021. Many of them are set to expire as early as next year.
This is a huge opportunity for banks to win the yes race.
It is also a big risk.
ANZ also pledged a 10-minute mortgage, but did not say when it will come to market. And it won’t be available to its core customers either, only to those using its new system and brand new ANZ Plus.
If ANZ is not successful, it will continue to lose market share in the mortgage market and will have wasted a huge amount of investor equity buying Suncorp.
The deal still needs to be approved by the federal treasurer, the competition regulator and the Queensland government. If any of them cancel the deal, they might just be doing ANZ shareholders a favor.