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Speaker 1: Welcome to Fear and Greek Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Sean Aylmer. There's a lot happening in the world

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Speaker 1: of banking right now. Just this week, Commonwealth Bank held

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Speaker 1: its AGM, where it emerged that Matt Common will stay

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Speaker 1: on as CEO for another three years at least bank

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Speaker 1: the Bank of Queensland announced the jump in profits, and

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Speaker 1: most significantly, new A and Z boss Nuno Matos revealed

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Speaker 1: his plan to dramatically improve efficiency and profitability at the bank.

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Speaker 1: So what's the all mean for investors? Remember this is

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Speaker 1: general information only and you should always seek advice tailored

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Speaker 1: to your circumstances before making investment decisions. Matt Wilson is

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Speaker 1: jard In Australia's banking analyst. Matt, Welcome to Fear and

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Speaker 1: Greed Q and A.

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Speaker 2: Thanks Sean, good to be here.

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Speaker 1: Let's start with an Z often the fourth of the

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Speaker 1: Big four, but the new CEO, Nuno Matos, has certainly

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Speaker 1: made an impact over the past couple of weeks, outlining

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Speaker 1: a new strategy, you know, suggesting that, I mean he

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Speaker 1: put hard numbers on some of the metrics, he wants

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Speaker 1: to achieve and wants to kind of get to best

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Speaker 1: in class, et cetera. Where does ain Z sit in

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Speaker 1: all this, I.

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Speaker 2: Think they sit quite well. It's refreshing that not I

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Speaker 2: always had the courage to come to Australia and set

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Speaker 2: absolute targets. It's it's been pretty standard practice in the

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Speaker 2: UK and Europe roe cost income. It's served the British

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Speaker 2: banks well coming out of the GFC. It's good to

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Speaker 2: see it here. He's clearly done his homework and he's

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Speaker 2: employed a strong cadre of executives to join him on

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Speaker 2: this journey.

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Speaker 1: Is ain Z is it now an Australian being. I mean,

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Speaker 1: we always thought about A and Z as kind of

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Speaker 1: the most global of the local banks, and it's certainly

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Speaker 1: had lots years ago India in places like that. But

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Speaker 1: is it refocused pretty much on Australia.

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Speaker 2: It still has that global footprint, particularly in its institutional franchise,

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Speaker 2: where it has a unique franchise in an Australian context,

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Speaker 2: providing you know, payments and services and institutional wholesale banking

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Speaker 2: services around the world for its customers. Obviously, its retail

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Speaker 2: and commercial business is now Australia only focused. They did

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Speaker 2: have a foura into Asia and it's probably been left

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Speaker 2: behind from a focused perspective. In New Zealand, they've got

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Speaker 2: the leading franchise. Think of Commonwealth Bank here, that's A

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Speaker 2: and Z in New Zealand.

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Speaker 1: Okay, And in terms of valuation, and I mean so

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Speaker 1: for listeners, you know, we're going to go through all

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Speaker 1: four banks, and mad I'm going to ask you each

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Speaker 1: in terms of valuation, where's AZZI.

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Speaker 2: Well, it's the cheapest of the four at a pe

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Speaker 2: of around sort of fourteen times. NAB and Westpac are

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Speaker 2: on twenty times earning. CBA is nearly thirty times earnings.

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Speaker 2: Those multiples are very high relative to historical data. You know,

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Speaker 2: they typically trade in the ten to twelve times earnings perspective.

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Speaker 2: So banks are very expensive at the moment. Am Z

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Speaker 2: is the cheapest, so we like to think of it

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Speaker 2: in a relative sense.

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Speaker 1: Let's shift to Westpac, another bank with a new CEO

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Speaker 1: also plenty of management changes at the top. Has done reasonably.

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Speaker 1: I mean, all the banks have done well, so it's

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Speaker 1: hard to complain about if you're a shareholder. What's the

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Speaker 1: outlook for Westpac?

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Speaker 2: Westpac are in an interesting sort of dilemma. They are

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Speaker 2: doing the right thing by going down the path the

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Speaker 2: project they call Unite to consolidate you know, layers and

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Speaker 2: layers of it architecture that's been put on there over

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Speaker 2: the last twenty five years. There's been a reluctance through

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Speaker 2: four or five CEOs to make a hard decision with

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Speaker 2: respect to Saint George and Bank of South Australia. Anthony

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Speaker 2: Miller has made that tough decision and now he's sort of,

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Speaker 2: you know, at the beginning of a long journey. I

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Speaker 2: think it will be to consolidate that complex architecture, but

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Speaker 2: hopefully at the end of that journey end up in

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Speaker 2: the right spot. It won't be easy, but they're doing

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Speaker 2: the right thing.

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Speaker 1: Is there a risk that that UNITE project means the

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Speaker 1: rest of the bank has to tread water for two

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Speaker 1: or three or four or five years.

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Speaker 2: That's always a risk with large projects. I think this

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Speaker 2: is one of the largest banking projects globally, and so

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Speaker 2: there is a risk that it can take twice as

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Speaker 2: long and take twice as much and in doing so

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Speaker 2: starve other areas of the bank. You know, eighty percent

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Speaker 2: of UNITE fronts into the retail franchise. The institutional franchise

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Speaker 2: should be free to run, and New Zealand should be

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Speaker 2: free to run. But a large part of the bank

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Speaker 2: is internally focused.

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Speaker 1: Come off bank thirty times earnings keeps giving that common

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Speaker 1: for another three years at least. Where do we standing

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Speaker 1: with the come on I mean, can you still buy

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Speaker 1: come off Bank?

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Speaker 2: I wouldn't. Look it's a great bank. I don't think

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Speaker 2: it's technological advantages are as wide relative to the peers

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Speaker 2: as CBA makes out. They're very good at marketing themselves.

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Speaker 2: The real advantage that CBA has its deposit franchise, you know,

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Speaker 2: close to half it's net interesting income comes from an

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Speaker 2: endowment of very low cost and in some cases no

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Speaker 2: cost deposits, and that advantage is start compared to the

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Speaker 2: other three. Ralph Norris was the CEO who took CBA

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Speaker 2: down this technology path by trade. He was an old

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Speaker 2: software programmer, so he had a deep love of it

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Speaker 2: and he moved CBA first early into that space, which

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Speaker 2: was real positive. But you know, the gap I don't

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Speaker 2: think is as wide as they'd like to make out.

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Speaker 2: Their real advantage's deposits.

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Speaker 1: Okay, de les is with National Australia Bank haven't heard

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Speaker 1: as much about NAB, But where's that one up to.

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Speaker 2: So NAB's in the fortunate position in that it's not

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Speaker 2: having to embark on a large sort of project of

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Speaker 2: self help. You know, they started their next gen project

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Speaker 2: about fifteen years ago. They're in reasonably good shape at

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Speaker 2: an IT perspective. NABS challenges them all that. You know,

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Speaker 2: it's store work business banking franchise that has held NAP

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Speaker 2: together through a long period of distractions elsewhere is now

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Speaker 2: under attack from some CBA for a long period of time.

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Speaker 2: And Mike facey Lyle at CBA has done a great

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Speaker 2: job leveraging CBA's depositive vantage into NABS domain business banking.

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Speaker 2: Westpac wants to win market share and then No No

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Speaker 2: on Monday also indicated that he wants to be bigger

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Speaker 2: in business banking as well. So NABS finding it hard

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Speaker 2: defending its turf in the business banking space.

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Speaker 1: Okay, what about the regionals speak of Queensland came out

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Speaker 1: yesterday and not a bad result at least it looks

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Speaker 1: like the share price jumped on the back of it.

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Speaker 1: It has certainly struggled over the past couple of years

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Speaker 1: from management down. Where do you put the regionals? Bendigo

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Speaker 1: and Adelaide is another one.

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Speaker 2: Yeah, we like Bendigar. I think Bennie Goes an interesting franchise.

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Speaker 2: It's customers love it. Marty Baker, the former CEO, did

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Speaker 2: a very good job assembling a bunch of interesting tech

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Speaker 2: options there with up and Timely. Indeed, Timely is the

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Speaker 2: software that runs CBA's digital home loan product. Not many

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Speaker 2: people know that, and CBA would admit to it, but

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Speaker 2: that's true. So benny Goes quite unique and doing quite well,

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Speaker 2: and we've had a change of CEO there, and so

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Speaker 2: Richard's got a platform to continue to grow that franchise strongly.

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Speaker 2: Bank of Queen's Land sort of diametrically applosed to CBA

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Speaker 2: from a funding perspective. It has no real low cost

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Speaker 2: deposits at all, and it's finding it very hard to grow.

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Speaker 2: Hence it's it's home loan book who's shrinking. They're trying

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Speaker 2: to pivot out of home loans into business banking again

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Speaker 2: threat to NAB, but you need bankers and you need capability,

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Speaker 2: and they're also looking to sell half their their equipment

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Speaker 2: finance business and take advantage of you know, what we

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Speaker 2: think is a bubble in private credit and an appetite

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Speaker 2: for yield out there. So Banker Queensland's in a very

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Speaker 2: challenging position. BENDI goes in a very strong position.

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Speaker 1: Okay, So let's bring this back to what it means

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Speaker 1: for us as customers. Where would the competition be in

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Speaker 1: the next six twelve months. Is in mortgages? Is it

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Speaker 1: in business? Where do you think that we as consumers

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Speaker 1: might benefit most.

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Speaker 2: I think consumers win across the broad because banks are

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Speaker 2: back to focusing on delivering service across retail banking, which

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Speaker 2: is deposits and home loans, and then into the business

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Speaker 2: banking space, expanding into agri and what have you. And

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Speaker 2: when you have four major banks focused on that, two

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Speaker 2: regionals and then you can include Judo in that equation,

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Speaker 2: you know, that's a good outcome for consumers. There should

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Speaker 2: be some good deals out there, some good attention from

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Speaker 2: bankers on customers, because the banks have been guilty of,

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Speaker 2: you know, closing branches, removing bankers, forcing us into call centers,

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Speaker 2: et cetera. Now we should be looking forward to to

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Speaker 2: having much better service because the banks that supply better

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Speaker 2: service best products and best price are going to be

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Speaker 2: the ones that win market share.

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Speaker 1: And as an investor, which of those six let's put

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Speaker 1: ben again Bank of Queens down with the big four.

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Speaker 1: Which of those six do you favor? Which ones do

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Speaker 1: you not favor? Of course, on the back of valuations

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Speaker 1: where they're training today.

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Speaker 2: Yeah, Amzed's at the top of our list. We like

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Speaker 2: no We like his fresh approach to Australia and we

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Speaker 2: think that you know, the cost out opportunity will be

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Speaker 2: easy for him over twenty six twenty seven. The revenue

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Speaker 2: opportunity will be much harder, but that comes in twenty eight,

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Speaker 2: twenty nine and thirty. The other banks won't stand still.

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Speaker 2: But I think No No starts from a very strong position.

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Speaker 2: He'd done it in Europe, he's done it in Mexico,

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Speaker 2: and he's a retail and business banker by trade. And

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Speaker 2: then it's hard to split Westpac and NAB. They're both

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Speaker 2: on twenty times earnings. Westpac obviously confronting a pretty large

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Speaker 2: project with a lot of execution risk. NAB doesn't have that.

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Speaker 2: But NAB's being attacked by WESTPACCBA and a in Z

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Speaker 2: in its core franchise, and then CBA last look, there's

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Speaker 2: nothing wrong with the bank other than its valuation. It's

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Speaker 2: a very good bank. It's just a very lofty valuation

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Speaker 2: which I think will unravel through time.

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Speaker 1: Matt, thanks for talking to Fear and Greed.

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Speaker 2: No, Larry's pleasure to be here.

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Speaker 1: Sean. That was Matt Wilson, banking analyst at Jardin. Remember

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Speaker 1: this is general information only, and if you're going to invest,

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Speaker 1: to get professional advice tailored to your circumstances before making decisions.

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Speaker 1: If you've got something you'd like to know, then send

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Speaker 1: through your question on LinkedIn, Instagram, Facebook, or at Fearinggreed

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Speaker 1: dot com dot au. I'm Sean Almer and this is

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Speaker 1: Fear and Greed. You and Day