Two into one just won't go, says ANZ

By GARETH VAUGHAN

Australian banking group ANZ has watered down its plan to combine the National Bank with the New Zealand arm of ANZ.

The ANZ, which bought the National Bank from Britain's Lloyds TSB for A$5 billion last December, said it would retain the two banks' retail computer systems.

This would potentially increase the annual cost savings, expected to kick in for the full year in 2007.

Total costs of the merger were expected to fall to $220 million, from $265 million, and savings would rise from $69 million a year to $76 million, ANZ said.

The bank disclosed its new plans with its annual earnings for the year to September 30, which showed the profit from its New Zealand operations more than doubling to A$584 million ($624 million), compared with A$211 million in the previous year.

The National Bank contributed A$375 million of the latest profit. The ANZ group posted a 20 per cent rise in profit, to A$2.8 billion.

The ANZ has kept the ANZ and National Bank retail businesses as stand-alone operations, in what it claims is a defensive strategy.

Sir John Anderson, managing director of ANZ National Bank, said cost savings from a single computer system would be unlikely to offset the potential loss in revenue from upsetting customers.

If ANZ and National lost 1 per cent of customers while combining computer systems, that would cost $80 million, Anderson said.

He dismissed a mortgage price war among major banks as "a little bit of playing around in the market".

The ANZ recently dropped its two-year fixed home loan rate to 7.35 per cent, from 7.75 per cent, and the BNZ has said it will beat any other bank's two-year fixed rate.

Anderson said that if the Reserve Bank raised interest rates tomorrow as expected, mortgage rates would be likely to follow sooner or later.

Peter Marriott, ANZ chief financial officer, said the merger was 30 per cent complete and was now expected to be completed by the end of next year.

"Perhaps we are slightly behind schedule because of some of the delays associated with finalising the Reserve Bank [requirements] and the work done on retail systems," Marriott told analysts.

"Unanticipated additional costs" associated with meeting Reserve Bank criteria for, among other things, moving disaster recovery facilities from Australia to New Zealand will total $31 million in 2005 and $12 million annually.

Integration costs totalled $49 million as of September 30, said ANZ.

David Tripe, senior lecturer at Massey University's Centre for Banking Studies, said there was no evidence that the ANZ National Bank merger had destroyed value. But he said the ANZ retail brand, which ranked last in customer satisfaction surveys over recent years, remained a problem.

Tripe suggested the computer systems could be gradually merged.

ANZ chief executive officer John McFarlane told analysts that dropping either the ANZ or National Bank name would "almost certainly" have reduced market share. He said overall New Zealand market share had been maintained.

Banking on it

ANZ National Bank posts annual profit of A$584 million, with its recent New Zealand acquisition National Bank contributing A$375 million.

The group has decided to keep two computer systems in order to retain customers. Additional costs to meet Reserve Bank criteria will total $31 million next year and $12 million annually.

ANZ says the merger is 30 per cent completed, with full benefits of A$76 million a year to flow from 2007.