ANZ bank pre­pared to lose Asia clients

The Pak Banker - - COMPANIES/BOSS -

Aus­tralia & New Zealand Bank­ing Group Ltd. Chief Ex­ec­u­tive Of­fi­cer Shayne El­liott reshuf­fled his top man­age­ment and un­veiled a new drive to im­prove the bank's prof­itabil­ity, say­ing he's pre­pared to lose cus­tomers in Asia in or­der to boost re­turns.

El­liott, the for­mer chief fi­nan­cial of­fi­cer who took over as CEO this month, said the bank will have "hard con­ver­sa­tions" with clients un­will­ing to pay for the re­gional ser­vice and fund­ing the len­der pro­vides. He also said he'd pre­fer to re­duce the num­ber of Asian lenders ANZ held stakes in.

"We pro­vide ac­cess to our bal­ance sheet and ser­vices to mul­ti­ple coun­tries," El­liott said Wed­nes­day in a tele­phone in­ter­view. "That is only of value to some clients and un­less clients are will­ing to pay for it, then we re­ally can't have them as our clients."

El­liott in­her­ited ex­ten­sive op­er­a­tions across Asia from pre­de­ces­sor Mike Smith, who pur­sued an ex­pan­sion strat­egy that has dragged down re­turns on equity and hurt the share price. He joins bank CEOs in­clud­ing Deutsche Bank AG's John Cryan in sig­nal­ing a loss of pa­tience with the dif­fi­culty of gen­er­at­ing fees in Asia.

"It is not about ex­it­ing prod­uct ar­eas or ge­ogra­phies in Asia," to boost re­turns, El­liott said in the in­ter­view. "It is about hav­ing some hard con­ver­sa­tions with some cus­tomers, and if that means some of those cus­tomers say they will take their bank­ing else­where, so be it."

El­liott al­ready flagged his fo­cus on im­prov­ing re­turns on equity from the re­gion in Oc­to­ber when the bank re­ported its slow­est growth in an­nual profit since 2008. The bank said then it will shrink its Asian trade fi­nance ex­po­sure by A$9 bil­lion ($6.3 bil­lion). That move would "buy time" for the new man­age­ment to turn around the busi­ness, El­liott said.

ANZ's over­seas op­er­a­tions, pri­mar­ily the busi­ness in Asia, con­sumed nearly a third of the bank's cap­i­tal in the year to Septem­ber, while ac­count­ing for less than one-fifth of prof­its.

"El­liott's con­cen­tra­tion on re­turns is a good story given ROE , profit growth and div­i­dend are the main fo­cus for an in­vestor," David El­lis, a Syd­ney-based an­a­lyst at Morn­ingstar Inc. said by phone. "While los­ing clients may re­duce rev­enue, the pos­si­bil­ity of in­creased ROE out­weighs it." ANZ also an­nounced plans to reshuf­fle the bank's top man­age­ment, with Mark Whe­lan ap­pointed to lead the in­sti­tu­tional-bank­ing busi­ness and re­place An­drew Geczy, who said last week he will leave the com­pany by the end of the month. The deputy head of the in­ter­na­tional and in­sti­tu­tional busi­ness, Gilles Plante, will also leave, it said.

In the in­ter­view, El­liott re­it­er­ated plans to exit some of the bank's in­vest­ments across Asia. The stakes in­clude a 39 per­cent hold­ing in PT Bank Pan In­done­sia and 24 per­cent of Malaysia AMMB Hold­ings Bhd. El­liott said ANZ isn't in a hurry to exit the part­ner­ships, but he in­di­cated he'd pre­fer to have a smaller port­fo­lio in five years. The len­der val­ued its share­hold­ing in the Asian as­sets at A$5.4 bil­lion as of Sept. 30, ac­cord­ing to its an­nual re­port.

"We are open to shrink­ing the port­fo­lio," he said. "We do have time but on the other hand I don't want to be sit­ting on the same port­fo­lio in five years' time. We need to move on." As part of the lead­er­ship shakeup, man­age­ment re­spon­si­bil­ity for the bank stakes across Asia was carved out of the in­sti­tu­tional busi­ness and handed to El­liott's deputy, Gra­ham Hodges. ANZ shares are trad­ing at 1.15 times the value of its net as­sets, the low­est among its main com­peti­tors -Com­mon­wealth Bank of Aus­tralia, Na­tional Aus­tralia Bank Ltd., West­pac Bank­ing Corp. -where the av­er­age is 1.9 times. ANZ shares have lost 27 per­cent in the past 12 months, com­pared with a 15 per­cent drop in the S&P/ASX200 bank in­dex. The bank's re­turn on equity for the year ended Sept. 30 stood at 14 per­cent, com­pared with 19 per­cent for Com­mon­wealth Bank and 16 per­cent for West­pac Bank­ing Corp. in their most re­cent fi­nan­cial years, fil­ings show.

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