The $5B bank merger - happy families or ethnic cleansing?

Friday 25th June 2004

Sir John Anderson gives the impression he is channelling Nelson Mandela but in a pinstripe suit and with a few extra pounds. That's what happens when a corporate leader tries to bring together two previously warring tribes who speak different corporate languages one cool blue, one bright green.

And when you have to soothe egos and soften cultures while hanging on to $42 billion in assets, you find yourself talking about unity, humanity and common ground.

And the ANZ and National Bank chief executive has his we-are-the-world rhetoric down pat.

"We're all New Zealanders. We're next door neighbours, we have kids playing in the same soccer teams the similarities are very strong.

" I would have met 600-700 staff now as ANZ CEO and [even though] they have different uniforms on ... as people they are wonderful New Zealanders and that's where I think we will have no problem coming together."

It is good that Sir John is so optimistic about the deal that this week sees the blue ANZ Bank and green National Bank become a single legal entity.

He will need to be. Insiders working on the merger process say ANZ staffers feel they are victims of a business form of ethnic cleansing, where anything to do with the blue bank is to be purged while the National Bank's people and approach take over.

That can be hard to swallow when you work for the blue team, which has spent $5 billion on acquiring its competitor in the biggest shakeup in the banking market since deregulation.

"If you've spent billions you would like the takeover to be from your side," one ANZer said.

Instead, there is a perception everything's gone green at what will be the ANZ National Bank. ANZ managers point to the way in which key roles were filled by National Bank people and some feel miffed.

The heads of institutional banking, commercial banking and SME banking have all been filled by National Bank people, despite ANZ being perceived as stronger in the institutional market.

Sir John counters that in the top 30 management jobs, the spread is 16 from the National Bank and 14 from ANZ, although he concedes of his direct reports eight come from the National Bank and only four from ANZ.

An official list released of 20 managers in the new organisation, which showed an even spread between both sides, was not strictly hierarchical, critics say.

National Bank general manager of corporate affairs Cynthia Brophy said a chart of the top management could not be verified because it was uncertain whether all the senior appointments were "final" and it was inappropriate until the Reserve Bank gave its approval.

"It is also a policy that we don't release information into the public domain that could potentially send confusing messages about the brand or brands," Brophy said.

The ANZ feeling of disgruntlement is fuelled by the powerful alpha-male persona of Sir John, who likes to keep close control of practically every aspect of the National Bank and now ANZ National Bank brands.

It is not an urban myth that he personally checks every piece of communication sent out by the bank something that could take up to a day a week.

"I do that now for ANZ National. If you're a service organisation your reputation is everything. It's how you present yourself that's one of the key jobs of the CEO."

In another example of Sir John's over-arching influence, at a meeting of the National Bank and ANZ's soon-to-be-merged marketing departments, the ANZ team explained its brand while the National Bank team members put on a video of Sir John to do it he spoke for them.

In an age where the cult of the CEO has been debunked, does this corporate leader exert too much influence?

"When you have been 15 years as a chief executive you've got a slight bit of influence," Sir John replied drily. "Whether that's too much or not, you need to look at the outcomes."

But historically the outcomes for banking mergers have not been great. The Westpac-Trustbank marriage was widely considered a failure. Eventually Westpac gave up the pretence of a merger and lopped the "trust" bit off the end. Many of ANZ's current problems are still attributed to a bungled linkup with Postbank.

"There's a history of things turning to custard in bank mergers," director of Massey University's centre for banking studies David Tripe said.

Marketing strategist Howard Russell said McKinsey & Co research showed 70-80% of these sort of large mergers failed, or at least it was found that one plus one was equal to less than than two.

In Westpac's case the fallout for customers was so negative, even before any changes were made, the bank's advertising agency ran a campaign saying, "Things are coming together nicely."

Sir John insists the difference in the ANZ National Bank case is its commitment to a two-brand strategy.

Some parts of the organisation will stay branded as ANZ institutional banking, corporate finance, trade and transactional services. Others will be branded as the National Bank including rural banking, where National has a 40% share thanks to its 1994 acquisition of Rural Bank, compared with ANZ's 6%.

But on the shop floor both brands will continue, with the separate networks of branches maintained.

In the retail market the National Bank is defending a 22% share while ANZ has 18%. It would be easier to hang on to the combined 30% share this way, Sir John said.

"It's easier to defend those [figures] around two brands and two brand strategies. We are putting them side by side but not merging teams or strategies," Sir John said.

So far, that has meant 40 Auckland-based jobs in ANZ's marketing department in Auckland have gone as the function relocates to Wellington.

How separate the two brands remain depends on the bottom line.

"The key to that comes back to 'are you going to keep market share and grow?' WestpacTrust lost 25% market share in the mortgage market and lost a lot of the market share in the personal market, so their strategy around WestpacTrust didn't work and they reverted to one brand," Sir John said.

The two-brand approach to marketing is going to face a potential problem in years to come when it is forced to give up part of the National Bank logo the Lloyds horse and even its shade of green. These requirements by vendor Lloyds were part of the sale deal.

This is a big upheaval in a market where research shows consumers distinguish between banks in terms of colour ASB is yellow, BNZ is dark blue, ANZ light blue, Westpac red and the National Bank green.

But Sir John insists the need to revamp the brand is not pressing. "That's about eight years out so that's the least of our considerations ... we could keep the National Bank name but use a unicorn," he joked.

"I think the horse is very enduring but there have been some good ideas, which I can't share with you for obvious reasons, about how we change that. The National Bank has got such a strong name in itself."

One of the few successful mergers was the National Bank's capture of Countrywide Bank in 1998 hailed by academics as a case study of how to do it well despite 800 jobs being lost.

The financial sector union Finsec said during that merger the National Bank came to the union to discuss issues and tried to get down to the coalface. But the National Bank had changed its approach in the last couple of years, becoming less keen to talk as it prepared itself for sale.

"The pressure came on and the shutters came down," Finsec general secretary Andrew Casidy said.

The merged bank's general manager of people capital and HR, Andrew McSweeney, said his division had until now been focused on management and was just beginning to do work with staff. "When we do that we will fully involve the union as we have in the past."

What both the union and the bank agree on is that the two banks have very different business models.

So what's the difference?

Sir John describes ANZ's business model, rather unflatteringly, as being product-focused while National Bank goes for the cuddlier sounding "customer-centric" approach.

"ANZ looks at providing the products to customers ... while National Bank looks at one customer's view and across the board at how you can service a customer and meet their needs."

But surely every business wants to be customer-focused these days?

Well, no at least not for the moment.

Sir John said the bank would be running the two separate models, including ANZ's product-focused one, and continuing to compete.

This despite figures showing ANZ has been losing market share it saw a 1% drop in loans in the three months to March, while rival ASB experienced 6.6% overall growth.

Massey University's David Tripe added that ANZ was perceived as collecting a large amount of free income, while National Bank was considered less aggressive over fees.

ANZ used to be widely respected but had turned into a banking "supermarket" after the Postbank acquisition, which concentrated on the numbers of customers rather than their quality.

"The nature of the cultural problems at ANZ were probably so severe that a cleanout is not necessarily a bad outcome at all because things were so shaky and unsatisfactory," Tripe said.

Even if Sir John wanted to slap the National Bank approach on ANZ he couldn't very easily do it computer problems mean the two banks have to stick with their separate systems. In time they will both use ANZ's Hogan system with "National Bank features in front of it to provide a 'customer look,'" Sir John said.

"We've still got to work out if that's the best system solution to achieve what we are still wanting which is the customer-centric model."

Others point out the National Bank is positioned in a different part of the market from ANZ and that is reflected in its culture.

ANZ has a lower-value customer base, raising questions about how the two streams of customers will be treated with much of the bank merged do you have an upper and a lower class approach?

There are certainly differences in the way staff at the two banks are treated.

ANZ has moved toward a performance-based pay system, where staff get paid more for selling more, while the National Bank has a skill-based philosophy in which pay is linked to a staff member's learning.

Finsec's Casidy said the performance-based system introduced elements of competition among staff and led to problems in agreement on performance targets. For example, if you worked in a branch located in the midst of a property boom, life could be sweet, but meeting targets would not be so easy in depressed places.

But the merged bank's McSweeney said the difference between the two approaches was not so clearcut: "Skills and performance are very much the same thing."

ANZ staff generally have higher wages and better conditions, according to Finsec, and the attempt to bring the two collective agreements together will be tricky.

The bank's hierarchy is keen to play down how different the organisations really are. They cite a trendy new tool called a corporate culture values assessment (CCVA), which came up with a Pollyanna-ish diagnosis.

Both banks were focused on customers and values of honesty, integrity and teamwork.

"The real challenge is not really around the cultures; it is just that given we are two large organisations we need to get to know each other," McSweeney said.

That hasn't stopped some ANZ staff from feeling they are being colonised by the National Bank.

In the early days staff were told not to meet on a social basis until the merger details were decided, but management says this was to satisfy the Reserve Bank and ended in March.

Either way, there has been a siege mentality between some factions within the bank.

"It's like an organ transplant in fact in this case it's almost a heart, lung, liver, kidney and brain transplant. Doctors focus on tissue compatibility but that isn't happening here," marketer Howard Russell said.

"And what about the customers? These companies say they are so customer-centric but what do the customers get out of it?"

The National Bank contingent is used to a very successful business model originated by Sir John, who has presided over the best-performing bank in New Zealand for the past 10 years.

But ANZ staff expect a style with more contestability where power is delegated and they can speak for themselves.

Some see the two approaches as being in conflict with each other.

When an ANZ meeting clashes with the National Bank-sponsored cricket test, which one is Sir John going to choose?

But in a statesman-like fashion, Sir John is confident there is no chasm between the two. "The words ethnic cleansing I would totally object to. The business model is changing but the culture of the people soon becomes one organisation and we respect each one's values and how we get on."

Sir John Anderson could find his next job is at the UN if he's not careful.

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