ANZ Group Holdings (ANZ) – Paying the piper

ANZ Group is a commercial and retail bank and the smallest of the big four Australian banks. ANZ was founded in 1835 and is based in Melbourne, Australia.

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ANZ Group (ANZ) has agreed to pay $240 million in penalties to settle five cases brought against it by the Australian Securities and Exchange Commission (ASIC). More than half of the fine is related to its financial markets division's role in managing federal government bond issues,while the remainder relates to breaches in its retail business. The bank will also submit a 'root cause remediation plan' (RCRP) to resolve its non-financial risk issues to the Australian Prudential Regulation Authority (APRA) by the end of the month, with the plan's $150 million cost to be funded by cuts elsewhere in business.

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CEO Nuno Matos said the bank had established a program within the bank to monitor progress in meeting its commitments to ASIC about its retail business compliance performance, with Promontory Financial Group appointed as an independent expert to measure progress. Promontory will also be appointed to monitor progress on the RCRP plan to resolve non-financial risk management and culture issues. Post the announcement, we cut our FY25 EPS estimate by 3.7% to incorporate the penalties, which we note are not tax deductible, while our FY26 and FY27 forecasts were unchanged.  Matos appears to be making the difficult decisions early in his tenure and is plotting a path to higher returns from ANZ, which has underperformed its big four rivals for quite a few years. If the new CEO can offer the market a realistic strategy, and successfully execute it, then investors should be convinced to re-rate the valuation multiple of the smallest of the big banks towards those of its larger peers.

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We maintain our Hold recommendation on ANZ on valuation grounds, and our target price stays at $30.00

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