ANZ Bank now expects to complete the formal integration of the National Bank of NZ by the end of 2005, but without integrating the 2 retail banking platforms.
It expects the process to be cheaper than originally estimated, but with some extra regulatory costs.
Chief executive John McFarlane gave details of the New Zealand integration today during the release of the bank’s $A2.8 billion record after-tax operating profit, which was up 19.9%.
10 months’ contribution from National added A2.3c/share to group cash earnings, increasing them by 10.1% to A161.1c/share (excluding significant items).
Mr McFarlane said unanticipated regulatory changes â€“ the Reserve Bank’s desire for banks’ New Zealand operations to able to stand alone â€“ would cost $31 million in restructuring investment in 2005, with an extra $12 million in annual running costs.
Integration cost down, synergies up
The total cost of integration was expected to be down from the original estimate of $265 million to $220 million, with net synergies up from $69 million to $76 million.
Mr McFarlane said the decision to reduce the scope of integration and to accelerate its completion “substantially reduces the risk & complexity of the programme and enables greater management emphasis to be placed on stabilisation of market share, future growth & financial performance.”ANZ now expects to complete the formal integration by the end of calendar 2005.
“This will consist of integrating head office activities, operational & functional support areas and the Institutional, Corporate and Rural businesses. International systems are part of ANZ’s global Institutional franchise and will continue to be run from Australia, with disaster recovery capability in New Zealand. ANZ is well advanced with this programme.”ANZ no longer plans to integrate the retail banking platforms as the payback is not compelling. This avoids the cost & risk of combining very different legacy platforms that will not advance the business strategically. The personal & small business segments in New Zealand now operate under 2 brands, ANZ and NBNZ.”These are under separate management to enhance active competition in the marketplace and are headquartered in different cities. At some time in the future, ANZ may merge the technology & operational support for these segments. However the costs & benefits of this will be taken as business as usual and the development costs of any new platform will be spread across both Australia & New Zealand.”The revised plans for New Zealand integration substantially reduce the management challenge & integration risk and allow management to focus on customer retention, growth & financial performance.”Legal amalgamation and non-systems integration is largely completed, and we are confident that integration & systems transfers to New Zealand to meet regulatory requirements will all be completed in 2005. We therefore expect to see the benefits of integration beginning in 2006, with the first full-year benefit in 2007,” he said.ANZ now expects the core cost of integration to be $NZ175 million, including $49 million taken in 2004. Synergies expected in 2007 consist of cost savings of $75 million & revenue benefits of $47 million, offset by revenue attrition of $34 million.
Mr McFarlane said unanticipated regulatory changes â€“ the Reserve Bank’s desire banks’ New Zealand operations can stand alone â€“ would cost $31 million in restructuring investment in 2005, with an extra $12 million in annual running costs.The Reserve Bank’s registration conditions require ANZ to move certain systems & operations – which support the ANZ retail brand, enterprise systems & disaster recovery facilities – from Australia to New Zealand. “This will result in restructuring investment in 2005 of $31 million & ongoing running costs of $12 million. Additionally an investment of $14 million is anticipated in 2005 for essential infrastructure, including Basel II & payments.
“Taking all of these costs into account, the total cost of integration is expected to be $220 million, with net synergies of $76 million, consisting of cost savings of $63 million & revenue benefits of $47 million, offset by revenue attrition of $34 million. This compares with original estimates of $265 million integration costs and net synergies of $69 million, consisting of cost savings of $126 million & revenue benefits of $31 million, offset by revenue attrition of $88 million.”As anticipated, we have experienced some revenue attrition with the consequent loss of market share, particularly in Institutional, as large customers rebalance their lines with the merged entity, and where substantial price competition has taken place. Notwithstanding this, the overall level of revenue attrition is less than half of that anticipated at the time of acquisition,” Mr McFarlane said.