While the focus may be on bank capital, bad debts, revenue, just what all banks will do with wealth is critical. And it is not like there is a “wealth” business which means the same at every bank. Wealth encompasses insurance, financial advice, the manufacture of products like superannuation and managed funds, fund management platforms, in varying mixes.
The Australian banks embarked on very different approaches initially. CBA bought Colonial but that business had been based around two star individuals, Chris Cuffe and Greg Perry, who left. Meanwhile, CBA built up its own platform which was a strong performer.
National Australia Bank bought MLC from Lend Lease. MLC was a “manager of managers”, it didn’t manufacture. But then NAB decided manufacturing was attractive and even attempted to buy wealth companies including AMP and AXA Australia.
Westpac Banking Corp sold a personal finance business, AGC, in order to buy a wealth business, BT, later than the others moved as even then the view was still wealth had greater growth options than traditional lending.
ANZ had built its own business, including stockbroking, in the 90s but then had a series of alliances and joint ventures with companies like Frank Russell and ING before buying ING out of a joint venture in 2009.
Announcing the latest review, Elliott said banks had a competitive advantage in distribution but not manufacturing. Life insurance, in particular, is a scale business and while Australian banks are large they are dwarfed by the global giants like Allianz.
Indeed the right model – and returns – for Australian ventures has never emerged. Should banks manufacture or just distribute? How do you manage the reputation risk with financial advice?
Some banks have had success with individual funds, some with distribution.
But predictions in the early 2000s that wealth should grow to around 20 per cent of earnings were never fulfilled.
Even at the peak, highest contribution was around 18 per cent for CBA. Most of the time, the contribution of wealth has been below 10 per cent – fine if the business is low capital, efficient to run and not causing brand images.
That hasn’t been the case. And to be fair, very few banks around the world have successfully executed a bancassurance or allfinanz model. The one that springs to mind, Mellon Bank in the US, is now almost no longer a bank.
So how the wealth story plays out, not just at ANZ but at all banks, will be fascinating.
As PwC noted in its review, the ANZ move “does not mean that all banks will, or should, follow suit. But as they look to become more connected and tailored to the myriad needs of a customer, they may need to release direct ownership of parts of the value chain’.
And the other huge, below the waterline, strategy is the digital transformation necessary to be a successful bank in a digital world.
“With 17 per cent or $6.2 billion of expense (excluding employees) in 2016 related to technology, we expect the banks to take more and more partnership approaches to innovation, infrastructure and distribution,” PwC noted, “reducing the organisational footprint to create more flexibility and access the very best of others’ developments.”
That story is just beginning.
Andrew Cornell is managing editor of BlueNotes.