at the time of the transaction, pre tax cost synergies were...

at the time of the transaction, pre tax cost synergies were expected to be 65mil. I don’t think any of the water under the bridge since 2017, would have changed that.

@Just_a_guy

As far as the expected synergies are related to a reduction of P&I’s Cost-To-Income ratio, I think you’re right, i.e. that sort of improvement should still be able to be realised.

From memory, when the deal was first announced, a re-alignment of ANZWM’s CTI ratio to the corresponding IOOF level did produce a synergies number in the ballpark of 60-70m$.

One thing to keep in mind, though, is that the 65m$ figure originally quoted would have included ADG too (not just P&I), and that part of the business has proved more problematic than initially expected.

If we look at P&I’s CTI ratio in isolation (slide 65 of the ANZ presentation in the link above), it was 59.2% (average) in FY19, vis-a-vis 52.6% for IOOF.

So, if X*(1-59.2%)*(1-30.0%) = 91m$ is P&I’s Pro-forma FY19 NPAT (assuming a 30.0% tax rate), the implied level of revenue X is 91m$/((1-59.2%)*(1-30.0%)) = 319m$.

Assuming that P&I’s CTI ratio is then improved to 52.6% (flat to IOOF) post-acquisition, the implied level of NPAT then becomes 319m$*(1-52.6%)*(1-30.0%) = 106m$.

Therefore, looking at P&I in isolation and restricting the amount of expected synergies to a re-alignment of the CTI ratio to IOOF’s corresponding level, the boost to NPAT is only 106m$-91m$ = 15m$ (or 21m$ pre-tax).

If ADG is brought back to break-even over time, that would add an extra 23m$ pre-tax from FY19 levels (i.e. it would negate the corresponding -23m$ FY19 pre-tax loss).

So, at this stage, a range of 20-45m$ in expected pre-tax cost synergies (or 14-31m$ in NPAT terms) looks more prudent to me when it comes to modelling future post-acquisition earnings.