01 Oct 2015
" How people expect their banks to operate, what they do, how they do it ... is going to change."
Shayne Elliott, Incoming ANZ CEO
Andrew Cornell: Mike, your retirement has been flagged now for a while but some were expecting an announcement next year. Has it been brought forward?
Mike Smith: This has all happened very much as planned. When I came to this job I thought it would be for five to seven years. The new chair asked me to stay for a further two years and I said okay. Then we went through the process of finding a successor.
There was quite a thorough review of both internal and external people and I'm delighted you have got the gig, Shayne. It's great that this is the first internal successor for ANZ since I think the early '90s. I think it's so much better to have an internal successor, I really do.
Obviously, these things are bitter sweet. I've really enjoyed my time but it had to come to an end. Eight years running a public company in Australia is probably enough.
AC: Shayne, Mike's been the architect of a much deeper Asian engagement, the super-regional strategy, but equally he's spoken of the importance of culture and values and the need to make the bank robust – not just financially but culturally.
Shayne Elliott: What impressed me early on and the reason that I joined ANZ was I just loved the ambition, this idea that you could build this super-regional bank. It actually hasn't been done for decades.
And I was really struck by the people that I met. Not just the management board team but a lot of people. Those values, the passion that people had for what they were doing around this was really exciting. I got this really strong sense from people about the respect they had for the place. It wasn't just about Australia, it wasn't just about Asia, it was about all parts are valued. That really struck me.
[When ANZ approached me in 2009] my wife and I had bought this - it's a very tiny - apartment in Rome. I was thinking - because New Zealand's a long way from anywhere - we'll go back home and that'll be our bolt hole to do things.
I was literally up the ladder painting the apartment. I remember I had rollers out. So I'm painting the apartment and I get phone call from a head hunter saying there was this job at ANZ and would I be interested.
After witnessing the GFC from where I was at the time in Cairo, while the GFC really didn't have any impact on us, I was seeing what was happening to the industry, seeing the appalling behaviour from the financial sector, Wall Street firmsk, whatever, and I was really not feeling good about that as an industry. I really didn't want to go back and work in banking, to be perfectly honest.
So I said, look, no, I wasn't interested. Then they mentioned ANZ and said why don't you go and meet. I said, well I'm in Rome. And they said, well you have to go to this place and do a video. They gave me this address. I said I don't have a suit, I have paint in my hair and I have a t-shirt.
They said, that's okay. So they gave me this address, I walk along and - I'm not joking - it was a church. I go in to this church and under the stairs in the church was a video suite - as one does in Rome - and I did this video interview.
What impressed me and the reason that I joined - long story short - was I just loved the ambition of ANZ, this idea that you could build this super regional bank. If you think about it, it actually hasn't been done not just in our period of time, it hasn't really been done for decades.
When you go back, the people that we aspire to emulate, we look at those franchises, those things were built 50 and 100 years ago so ANZ's ambition is quite bold - so that was really attractive.
I remember meeting Mike and others at 100 Queen St, [ANZ's former HQ] I was really struck by the people that I met. That was not just the management board team at the time but just a lot of people that I kind of knew from ANZ.
Again those kind of values, the passion that people had for what they were doing around this was really exciting. And again it was the values, the way people talked. One of the things - again - that really struck me was respect. I got this really strong sense from people about the respect they had for the place. As a New Zealander, I felt this really strong respect again at ANZ about the value of all of the parts of franchise. It wasn't just about Australia, it wasn't just about Asia, it was about all parts are valued.
MS: Look, I think the super-regional strategy in itself, to me, was blindingly obvious. It's what we needed to do. It hasn't been as obvious to the rest of the market - I've since found out - but that's one of the things that we have had to work against.
When you think about the structure and the business mix of ANZ, it's very different to the other banks in Australia. We're about a third institutional, a third commercial and about a third retail. So that means we're much more skewed to corporate banking, if you like to call it that.
Where was corporate banking going to go in Australia? There was limited growth potential and therefore we have to look to the region. Of course, those businesses are doing more with Asia all the time, so that to me was obvious. And I think we've done an extraordinary job.
SE: Absolutely. The other great thing we tend to forget is it wasn't just about building out the regional footprint, it was also about strengthening our home business. The whole 'Banking on Australia' program has been enormously successful.
To some extent it gets hidden a little bit, perhaps people don't notice as much as they should, but the reality is that our business has been growing market share, which is essentially what it's all about, profitable growth and market share.
There's been five - it will be five-and-a-half years now - of just consistent steady growth. That's just an enormously benefit to this organisation because it's a high-return, fabulous business we can continue to grow in almost any environment. So it's not just about building Asia.
MS: Eight years ago it would not have seemed possible to be where we are right now. I think my peers in international banks round the world look at ANZ as a model. They look at it as an example of what could be - can be done. They are always telling me “we don't know how you've managed to do this so quickly".
I think that that's a fantastic legacy but, as you say Andrew, getting the values into the organisation, a values-led culture, to me was incredibly important. I think the capital strengthening, liquidity, improving the credit quality of the book, all of these things are incredibly important, and we've done that as a great team.
Do you know what? We've had a lot of fun doing it. It's been a great ride. And we've had the GFC to cope with apart from that, where banks were falling over all over the place, where economies were going backwards. It was quite difficult.
We actually sailed through, and the Australian banking system sailed through, and I think we were able to support the government, which was a new government at that time. It was fortuitous perhaps. That enabled us to really, I think, help form a plan for what the government needed to do. Certainly, Australia came through the crisis much better than many other countries.
SE: I think we're at the really early stages of what the impact of the GFC will be on our industry right now. We've done all the right things. We've strengthened the balance sheet, we've extended liquidity, all that stuff.
That's absolutely necessary and was absolutely the right thing to do. The whole industry's going to fundamentally change. Social expectations, what people expect, how they expect their banks to operate, what they do, how they do it, how they interact, what they tell their customers, all of that stuff is going to change fundamentally.
That doesn't just mean we have to do a few apps or change the terms and conditions on our credit cards. That's about fundamentally rethinking what our role in the communities in which we operate actually is. I think there's going to be whole new business models that emerge as a result of that.
Disruptors essentially are just taking advantage of that. We're a big complicated organisation but we need to be really agile if we're going to succeed in the future. To me that's the essence of the challenge in the future.
AC: Australia has just had the Financial System Inquiry and obviously global regulation continues to evolve. There's the imperative now for banks to be “unquestionably strong" but it's interesting the regulators have made the point that's about leadership too.
MS: This obsession with capital as being the only defining measure for a strength of a bank isn't right because a bank - yes you have to have a strong balance sheet - but that includes your liquidity, it includes your credit quality and capital of course is part of that. But it's the people who manage it who most affect the bank and whether or not it's going to be strong or not.
It's the behaviours of the people who actually work for the organisation and therefore that values led culture is absolutely critical. You'll see regulators now really turning the tap up on this and it's going to become a more and more hot issue.
Frankly, the problems that we saw in the GFC, be they in Europe, the UK or in the US were around organisations that had lost touch with their culture and had lost touch with what was ethical behaviour within those organisations. There were only a handful of those frankly but they tarred the whole industry. We have to live with that and we have to try and make it better all the time.
SE: We just want to be a bank that customers are proud to come to and give us their business and that's all it is. We'll know every day because they choose us.
That means we have to have the best people, the best product, the best way of engaging, the best experience, and all that. We'll just know every day because customers will choose us.
We'll have people in this room who are proud to go and tell their friends they work at ANZ, and our customers will be proud to tell their neighbours and their colleagues that they bank with ANZ. We're 180 years old. If we can just get those simple things right we'll certainly survive another 180 years.
AC: Mike, you're well known as a classic car – classic British car – fan and you're fond of the automotive metaphor. How about you Shayne?
SE: I confess to being a bit of a car fan myself.
MS: You've got some nice old cars. Actually we're both tragics when it comes to that sort of thing really.
SE: You may be more tragic than me on that one. To be honest you're more likely to see me on the tram than you are in my car because it mostly spends its time in the garage being fixed.
I've been here six years. After five years of catching the tram and the bus to work I finally did buy a car. I bought an old Jaguar. It's certainly not going to win any prizes at the concourse, trust me.
MS: How old is that car? Must be…
SE: 1959, bit older than me.
MS: You're younger than me.
SE: Not as reliable.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
01 Oct 2015
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