Half Year 2024 Bank of Queensland Ltd Market Update Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Storey - UBS - Analyst : Thanks very much and good morning, Patrick. Congratulations on the announcement this morning in terms of simplifying the group. I think the first question I would have just on the cost targets, I think certainly we're getting a lot of incoming questions on this. If you're going to have a look at the OMB's operator cost to income ratio in terms of the data that you provided at 85%, 56% FY26 in terms of the pro formas where you're at the moment, 70% with the investment that you've outlined in terms of business banking. Maybe if you could just give us a little bit more color and help us to try and bridge from the circa 70 where you are at the moment to the 56% in the timeline that you've given. That would be my first question. And then the second question I would have is really just around some of your initiatives with regards to deposit funding within the business banking division. Obviously, you're doubling down in terms of your efforts there, but one of the deficiencies I think that you yourselves have called out is really just deposit funding within the division. Maybe if you could just give us some of your thoughts and what yourself and the board have thought about trying to close that relative funding gap within business banking. Thanks.

Question: John Storey - UBS - Analyst : Great, thanks very much.

Question: Jonathan Mott - Barrenjoey - Analyst : Thank you, Patrick. I've got a question on closing the owner-managed branches and it's kind of disappointing in a way given for 25 years this has really been a point of differentiation for BOQs, for many people, it's a tough day. You're saying this is going to be done by 2025 and I just want to get a feel for the process because it is going to have an impact on many people and many customers. If we look at it, I assume that there's a clause in the contract that allows you to buy back the R&Ds, but the economics don't look fantastic. It looks like it's around $1 million per branch. And then I wanted to get a feel for if there's a non-compete clause because I'm sure a lot of the small business owners who run these owner-managed branches are going to be disappointed. You'd have to presume many of them are going to go and become mortgage brokers and compete directly against you. So is there a non-compete clause to stop the OMB owners just going off and becoming brokers? And finally, what are your assumptions for customer attrition? Because a lot of customers have been loyal to the local owner-manager for many, many years and you'd have to assume some of them are going to be disappointed. So what are your assumptions around customer attrition for both mortgages and deposits in the OMB network?

Question: Jonathan Mott - Barrenjoey - Analyst : Okay, thank you. And just a final part on that was, in your own assumptions to get to the 8% return on equity, what customer attrition assumptions have you assumed or have you assumed that the business continues to grow just in an E&A corporate structure?

Question: Jonathan Mott - Barrenjoey - Analyst : Thank you.

Question: Matt Dunger - Bank of America Securities - Analyst : Yes, thank you for taking my questions, Patrick. On the OMB profitability, is it fair to assume there's a distribution of profitability across the branches? And what will the new footprint look like? How long is the tail of unprofitable branches? Is it 20%, -- 30%?

Question: Matt Dunger - Bank of America Securities - Analyst : Thanks, Patrick. And just to follow up, if I could, on the amortization period of four years, are you able to give us a sense as to what determines that?

Question: Brian Johnson - MST Financial - Analyst : Patrick, well done on kind of addressing the elephant in the room, which I think must be very hard for a CEO to do. I had a few questions if I may. The first one is 8%, you're doing about 5% at the moment, and there's kind of risk to get there. But I just wanted to flag to you how you'd respond to the fact that 8% probably doesn't equal your cost of capital. So at the moment, we've got bonds kind of sitting sub-4, put on 5% equity risk premium, kind of think about some kind of beta. You don't come to 8%. Do you think 8% is good enough, or ultimately, does this still suggest that you need some dramatic actions over and above this?

Question: Brian Johnson - MST Financial - Analyst : The second one, Patrick, is kind of like a weird accounting question. So below the line, you take this big expense. Okay, so it's expense below the line in the March '25 period. And then you're talking about amortising it, but you've already expensed it. Could I just clarify that you're taking it below the line? It hits the capital then. By amortising, you're talking about when you're physically paying out the cash. Could you just explain that?

Question: Brian Johnson - MST Financial - Analyst : So sorry, you can't. That's saying that you're booking it twice. You're saying that you're expensing it up front and yet you're amortising it over the time. You don't need to expense it twice, surely?

Question: Brian Johnson - MST Financial - Analyst : Fantastic, thank you. Thank you, Patrick. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 12:30AM, BOQ.AX - Half Year 2024 Bank of Queensland Ltd Market Update Call

Question: Ed Henning - CLSA - Analyst : Thank you. I've got a couple of questions. Firstly, just on in the near term, you think about the owner-managed branches and just talk about the revenue risk going through this transition period and the actual growth in your credit. What's going to drive them to continue to push loans if they're not going to get the full economic benefit until this transition kind of goes through? And then that one's the first one. I'll go on to the second one afterwards.

Question: Ed Henning - CLSA - Analyst : Sorry, do they currently get any trail commissions, obviously on their book and stuff, or that's what you're just going to pay out essentially at the end, the value of their book?

Question: Ed Henning - CLSA - Analyst : And with that, with the staff that they employ, you don't have to give redundancy or anything to them, that would be then on the owner-managed branches themselves?

Question: Ed Henning - CLSA - Analyst : Yeah. Okay, and then last one, just on the growth side, and can you just talk a little bit about, they're obviously pushing more business bankers, in there -- can you talk about your risk tolerance, and are you happy to potentially increase that a little bit to try and grow that book even further to kind of stimulate growth?

Question: Ed Henning - CLSA - Analyst : Okay, thank you, Patrick.

Question: Brendan Sproules - Citi - Analyst : Good morning, Patrick. Thanks for taking questions. I just have a question around the business bank, and the initiatives that you've described in this release as being material. I do note you've hired 10 bankers. I was wondering if you can give an indication as to how material is 10 bankers to the current operations? And then secondly, how quickly can this process really deliver revenue and earnings growth, noting the last sort of two or three periods you've seen declining revenue and flat lending growth up until at least the end of the first half?

Question: Brendan Sproules - Citi - Analyst : Thank you.

Question: Andrew Triggs - JP Morgan - Analyst : Thank you. Good morning, Patrick. My first question just on the change in the OMB strategy. I mean, for a long time you've been de-emphasising the corporate channel and priority of the OMB network, and the argument there has been that the corporate channels are far less productive than the OMBs. What's changed there? Because to me this looks like a cost decision rather than a franchise and revenue decision.

Question: Andrew Triggs - JP Morgan - Analyst : Sorry, Patrick, I meant that in recent years you've de-emphasised corporate in favour of OMB branches. You can see the mix has shifted quite dramatically over the last three years. My question is really, what has changed on your confidence of productivity within the corporate branches? Because clearly that was behind the decision to shrink the corporate branch network over the last three to five years.

Question: Andrew Triggs - JP Morgan - Analyst : And just on the size of the network, so as the OMBs are converted to corporate branches, will the overall size of the network continue to decline, do you think?

Question: Andrew Triggs - JP Morgan - Analyst : Thanks, Patrick. And just maybe a second question around the FTE reductions flagged. There's very little detail provided on where they'll be coming from. Can you give us a bit more context? They are very large numbers. So where are they coming from and what's the net impact? Because the previous 250-odd heads that you took out didn't really drop through to the bottom line given addition of staff or heads in other areas.

Question: Andrew Triggs - JP Morgan - Analyst : Thank you.

Question: Azib Khan - E&P - Analyst : Thank you very much. Patrick, if I go back to the FY26 targets you laid out in April as part of the interim results, you had mentioned back then that you were targeting FTE reduction greater than 400 by FY26. Today you've announced 400, but if I reconcile that with what was said in April, does that mean there's more to come or has there been a revision in plan for that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 12:30AM, BOQ.AX - Half Year 2024 Bank of Queensland Ltd Market Update Call

Question: Azib Khan - E&P - Analyst : Sorry, just to be clear on that, Patrick. So the 400 announced today is in addition to the greater than 400 announced previously.

Question: Azib Khan - E&P - Analyst : Okay. And just another question if I may. You've mentioned you'll be looking to recycle capital away from lower returning segments to the higher returning business banking segments. Does that comment specifically apply to just within the business bank, a reallocation of capital within the business bank? Or does that also refer to allocating capital away from home lending to business lending?

Question: Azib Khan - E&P - Analyst : Thank you.

Question: Richard Walls - Morgan Stanley - Analyst : Good morning, Patrick. A couple of questions. Firstly, on the owner-manager conversion, you've outlined that you won't have to pay the commissions going forward. And you've also outlined that the OMBs are a higher cost network. I'm wondering if you could tell us about the gross revenues of the OMBs. Are they higher or is it a more productive network than your corporate branches from a gross revenue perspective?

Question: Richard Walls - Morgan Stanley - Analyst : Okay. And my second question relates to the current trends. I understand you want to limit questions to today's announcement. So I won't ask you about specific trends, but it is five months into the current half. It's four months since you've spoken publicly to the market. You've chosen the timing of today's announcement. And I think if you don't comment on the current trading performance, then investors will quite rightly assume that your cash profit is tracking towards the consensus estimate. That's about $325 million for the full year. So is it right for investors to assume that since you're not commenting on it, that you are comfortable with consensus?

Question: Richard Walls - Morgan Stanley - Analyst : Okay. Thank you, Patrick.

Question: Matthew Wilson - Jefferies - Analyst : Yeah. Good morning, Patrick, and team. Matthew Wilson, Jeffries. Can you hear me okay? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 12:30AM, BOQ.AX - Half Year 2024 Bank of Queensland Ltd Market Update Call

Question: Matthew Wilson - Jefferies - Analyst : Thanks. Why are you choosing to characterise the transaction as non-cash? Presumably, you're going to pay a checkout to each of these entrepreneurs that have run the owner-manager branches. And will there be a dispute process with respect to valuation? I also have a second question.

Question: Matthew Wilson - Jefferies - Analyst : Will there be a dispute process with respect to valuation? I imagine some of the entrepreneurs will have a different view of valuation than you do as is customary in a market practice.

Question: Matthew Wilson - Jefferies - Analyst : Okay. And then secondly, you talk about your business bank and pivoting towards it. Could you give the market colour on what do you think your competitive advantages are in the business bank? You mentioned the word competitive advantage a couple of times in the release. What actually are they?

Question: Matthew Wilson - Jefferies - Analyst : Just to follow up on the finance company, you don't have any real competitors because they've all closed down their finance companies for various reasons. Why do you think your view of the economics of a finance company differs to that of the major bank peers, Macquarie, and others?

Question: Matthew Wilson - Jefferies - Analyst : And if I could try my luck just finally on one more you talk about the acquisition in pre-tax terms. Can you talk about the taxation implications of the corporatisation? I would have thought it's a capital transaction, not an expense.

Question: Matthew Wilson - Jefferies - Analyst : But it shouldn't be tax deductible, no?

Question: Matthew Wilson - Jefferies - Analyst : Okay, thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 12:30AM, BOQ.AX - Half Year 2024 Bank of Queensland Ltd Market Update Call