ANZ investors brace for short-term pain as new CEO Nuno Matos clears the decks

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By Scott Murdoch and Christine Chen

SYDNEY (Reuters) -ANZ Group investors are willing to back new CEO Nuno Matos’ strategy to resuscitate the Australian bank’s flagging fortunes, but they are gearing up for near-term hits, including a possible dividend cut.

Over the last week, Australia’s fourth-largest lender said it would cut 3,500 staff at a one-off cost of A$560 million ($373.24 million) and pay A$240 million of penalties to the corporate regulator over systemic failures including acting “unconscionably” in a government bond deal.

The moves by Matos, who took over from long-serving predecessor Shayne Elliott in May, are a step in the right direction as he looks to clear the decks and stamp his authority on the bank, according to fund managers.

“Particularly around some of those (government bond) trading issues, which he was obviously not tainted with any of it, so he can come in and make some harder moves, and not have any legacy issues,” said Hugh Dive, chief investment officer at Atlas Funds Management.

“He doesn’t want to be dealing with this in a year or two’s time, because then it becomes his problem.”

ANZ has lagged its “Big Four” Australian bank rivals in market performance and is significantly cheaper than the rest of the pack based on its price-to-earnings ratio.

The Melbourne-based bank’s share price has risen 5.7% in the past year, compared to Commonwealth Bank of Australia and Westpac’s 18.1% increases and National Australia Bank’s 12.7% lift.

Bridging the gap with its rivals could be tough in the near term, with some investors and analysts expecting more pain to be announced on October 13, when Matos holds his first strategy day.

“He is most likely going to have to announce a cut to the dividend, so investors will be a little concerned about that but they’ll understand the reasons,” said Angus Gluskie, managing director of investment firm Whitefield.

“They’ll be a little bit concerned or sceptical about whether he can actually achieve the targets he’s after, but they will like the fact that they’re making inroads in attempting to do so.”

UBS has forecast ANZ’s 2025 dividend could be cut by up to 25%, which would bring its 5.7% dividend yield more in line with Westpac and NAB at about 4.5%.

There is a growing expectation the remaining A$832 million of a A$2 billion share buyback announced in May 2024 could be cancelled to preserve cash, according to analysts.

ANZ did not respond immediately to a request for comment on its capital management plans.

‘NO HONEYMOON PERIOD’ FOR INVESTORS

George Boubouras, managing director of K2 Asset Management, said the need for change at ANZ meant Matos had been granted “no honeymoon period” from investors eager to see its net interest margins protected.

The bank’s net interest margin in the first half of the current financial year was stable at 1.56% compared with the same half a year ago. However, it narrowed 2 basis points from the April-September 2024 period, ANZ reported in May, and is the lowest among the Big Four.

“Doing more of the same with a Big Four bank and having the structural decline of net interest margins is not what you want. The bank would become effectively a utility,” Boubouras said.

Matos on Monday said the record-high penalties from the corporate regulator reinforced that change was needed at the bank.

“We are getting again the basics right,” he said.

For their part, investors said they were willing to take some short-term pain, but they also wanted to better understand the bank’s longer-term plans as it looks to catch up with its rivals.

“I think Nuno is the change agent shareholders want, but does he have a vision beyond five years? Time will tell,” said Michael Bell, chief investment officer of Solaris Investment Management, an ANZ shareholder.

($1 = 1.5004 Australian dollars)

(Reporting by Scott Murdoch and Christine Chen; Editing by Jamie Freed)