ANZ: Partial sale of Wealth

ANZ has announced the sale of its OnePath pensions and investments business -  as well as aligned dealer groups -  to IOOF for $975 million.

The deal, which is only a partial sale of the bank's wealth businesses, includes a 20-year partnership to distribute IOOF wealth management products to ANZ customers

The sale of the wealth arm, OnePath pensions and investments, fits with chief executive Shayne Elliot’s strategy to focus ANZ on retail and business banking in Australia and New Zealand as well as institutional banking in the region.

According to Bell Potter analyst, TS Lim, the impact on ANZ’s earnings and return-on-equity is immaterial. 

“This transaction is in line with ANZ’s strategy of unwinding its overall wealth and life businesses and should increase the likelihood of a special or higher final dividend when it reports its 2017 result next week," he said in a dealer note.

UBS analyst Jon Mott owned to being "slightly disappointed" by the announcement having hoped that ANZ would have sold a larger proportion of its Wealth Management business by now.

"We believe ANZ is on the right track with its strategy to de-risk, simplify and refocus the business.

"However, much of the upside from asset divestments and potential capital returns now appears to be in the price."

ANZ’s common equity tier one capital ratio is expected to increase by 15 basis points.

Exiting life

“By partnering with IOOF, we are able to create greater value for our shareholders while also providing our customers with access to quality wealth products from a specialist provider with the right cultural fit, financial strength and digital capability,” said Alexis George, ANZ group executive wealth Australia, in a statement.

In further comments posted on the Australian Stock Exchange, George confirmed that ANZ intended to offload the whole wealth business, following the move by two of its two of its peers away from manufacturing product.

Commonwealth Bank recently sold its CommInsure business to AIA Group for $3.8 billion and National Australia Bank's sold life insurance division,MLC, to Nippon Life a couple of years back.

According to George, the sale of the ANZ's pensions and investments and associated dealer group businesses provides ANZ with greater flexibility to consider options for the life insurance business including strategic and capital markets solutions.

“I think as we’ve gone through this process it’s become clear that it’s actually better for the customers and for the shareholder that we separate the superannuation and insurance businesses and look for alternative outcomes for both of those,” she said in a statement.

“Separating the super business from the insurance business will take some time but once that happens it means we’ve got a clear life insurance business and that gives us much more opportunities than we’ve got today.

“It gives us a much cleaner look at what we do in insurance. Now, ANZ is still committed to the strategy of not manufacturing insurance. So, we need to look for alternatives for insurance."

A win for IOOF

IOOF said it would fund the deal with a $450 million institutional share placement.

The wealth manager also said it will become Australia's second largest advice business by adviser numbers.

According to UBS analyst Kieren Chidgey, IOOFs purchase of ANZ's Wealth business adds significant scale with an attractive price, synergies and debt funding driving strong double digit EPS accretion. 

"With significantly enhanced scale underpinning a further $65 million per annum of cost synergies by 2021, IOOF expects the deal to be over 20 per cent earnings-per-share accretive in outer years, though we note ANZ Wealth's lower net flow track record could reduce growth prospects off this higher base."

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