ANZ boss El­liott wields ax on Asia units to boost re­turns

China Daily (USA) - - Q&A WITH CEO - By BLOOMBERG

Just 10 months into the top job and Aus­tralia & New Zealand Bank­ing Group Ltd. boss Shayne El­liott is tak­ing an ax to much of his pre­de­ces­sor’s Asian legacy.

The chief ex­ec­u­tive of­fi­cer of the Mel­bourne-based lender an­nounced the sale of the re­tail and wealth-man­age­ment oper­a­tions in five Asian mar­ket­sMon­day and sig­naled the pos­si­bil­ity of more di­vest­ments to come: Stakes in Shang­hai Ru­ral Com­mer­cial Bank, Bank of Tian­jin Co., PT Bank Pan In­done­sia and Malaysia’s AMMB Hold­ings Bhd. are un­der re­view as the bank re­fo­cuses its ef­forts to­ward do­mes­tic mar­kets and its Asian in­sti­tu­tional oper­a­tions.

Such as­sets are “no longer core,” El­liott said on a con­fer­ence call on Mon­day. “If you don’t have suf­fi­cient scale, over time it just be­comes un­eco­nom­i­cal.”

The sale of the Asian as­sets to Sin­ga­pore’s DBS Group Hold­ings Ltd. for S$110 mil­lion ($79 mil­lion) rep­re­sented a “ma­jor mile­stone in re­shap­ing our port­fo­lio,” El­liott said. While he dis­missed sug­ges­tions that the bank was tak­ing a “big step back” fromAsia, the CEO has made clear that the dis­en­gage­ment from low-re­turn­ing di­vi­sions is pick­ing up steam.

“We are in the process of mak­ing some very ac­tive de­ci­sions to re­shape our busi­ness,” El­liott said.

Un­der his pre­de­ces­sorMike Smith, Aus­tralia’s third-largest bank by mar­ket value had set a tar­get to earn as much as 30 per­cent of prof­its from out­side Aus­tralia and New Zealand by 2017. Smith more than dou­bled the num­ber of ANZ’s Asian cor­po­rate clients and al­most tripled the num­ber of em­ploy­ees 21,000.

The logic for ex­pand­ing in the world’s fastest-grow­ing re­gion was un­der­mined by global in­ter­est rates stuck close to zero push­ing on mar­gins and new bank­ing reg­u­la­tions eat­ing into the re­turn from its net­work of mi­nor­ity stakes. Rules set by the Basel Com­mit­tee on Bank­ing Su­per­vi­sion re­quire cap­i­tal de­duc­tions for such share­hold­ings in other fi­nan­cial in­sti­tu­tions.

In its last fi­nan­cial year, ANZ’s over­seas oper­a­tions — pri­mar­ily in Asia— con­sumed nearly a third of the bank’s cap­i­tal while ac­count­ing for less than one-fifth of prof­its.

While it ex­panded north, its ri­vals fo­cused on fi­nanc­ing Aus­tralia’s property boom, with telling re­sults. ANZ’s re­turn on eq­uity for the year ended Sept. 30, 2015 stood at 14 per­cent, com­pared with 19 per­cent for Com­mon­wealth in the re­gion to Shayne El­liott, Bank of Aus­tralia and 16 per­cent for West­pac Bank­ing Corp. in their most re­cent fi­nan­cial years, fil­ings show.

“Banks do face sig­nif­i­cant chal­lenges if they go out­side their home ter­ri­tory,” Sharad Jain, a credit an­a­lyst at S&P Global Rat­ings in Mel­bourne, said in a tele­phone in­ter­view. There were “sig­nif­i­cant sim­i­lar­i­ties” be­tween ANZ’s ex­pe­ri­ence with bank­ing in Asia, and Na­tional Aus­tralia Bank Ltd.’s push into the UK, Jain said.

NAB spun off its UK unit ear­lier this year, which had bat­tled to win mar­ket share from Britain’s top lenders, and sold 80 per­cent of its life in­sur­ance busi­ness. Last week, CEO Andrew Thor­burn said the bank was now “to­tally fo­cused” on grow­ing its do­mes­tic busi­ness.

ANZ’s strate­gic fo­cus in Asia will now be on re­shap­ing its in­sti­tu­tional bank­ing, where it has been jet­ti­son­ing less prof­itable clients and fo­cus­ing on big cor­po­rate cus­tomers. Its in­ter­na­tional and in­sti­tu­tional-bank­ing di­vi­sion ac­counted for 37 per­cent of cash profit in its last fi­nan­cial year.

“We want to grow that, we want to in­vest in that, but with the right cus­tomers in the re­gion and the right re­turn,” ANZ’s in­sti­tu­tional bank­ing head Mark Whe­lan said by phone onMon­day.

The sale of the Asian busi­nesses to DBS may lower the Aus­tralian bank’s earn­ingsperin two years by up to 2 per­cent, but will boost its core Tier-1 eq­uity cap­i­tal ra­tio by 15-20 ba­sis points to about 9.4 per­cent, ac­cord­ing to a re­port from Mac­quarie Group Ltd.

“We see it as a small but in­cre­men­tally pos­i­tive strate­gic step,” Mac­quarie said. “Op­ti­mi­sa­tion of its sub-scale busi­nesses in Asia should ul­ti­mately lead to im­proved re­turns and greater fo­cus on the core fran­chise.”

Also on the block are the bank’s stakes in Shang­hai Ru­ral, Bank of Tian­jin, AMMB and In­done­sia’s Panin -- share­hold­ings that El­liott val­ued at a com­bined A$4 bil­lion ($3 bil­lion). “Over time, in no hurry, but over time, we will look to sell those stakes,” he told re­porters at a brief­ing in­Hong Kong onMon­day.

Ex­it­ing such pe­riph­eral busi­nesses “re­leases cap­i­tal, it re­leases man­age­ment time, it de-risks the bal­ance sheet,” S&P’s Jain said.

ANZ re­ported its full-year re­sults on Thurs­day, where ex­ec­u­tives are ex­pected to give a fur­ther up­date on the bank’s strat­egy. The me­dian es­ti­mate of 14 an­a­lysts sur­veyed by Bloomberg is for cash earn­ings of $6.1 bil­lion, down from $7.2 bil­lion last year.

We are in the process of mak­ing some very ac­tive de­ci­sions to re­shape our busi­ness.”

CEO of Aus­tralia & New Zealand Bank­ing Group Ltd

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.