10 January 2017

Australia’s ANZ scales back businesses in Asia

After years of expansion efforts in Asia, the Australia and New Zealand Banking Group (ANZ) is making a U-turn by cutting back on its operations in the region. Last week, the banking group announced it would offload its 20.0 per cent interest in Shanghai Rural Commercial Bank (SRBC) for CNY 9,190 million (USD 1,328 million), which represents about 1.1 times the target’s net assets as at December 2015. Shanghai Sino-Poland Enterprise Management Development and Chinese shipping company China COSCO will each take a 10 per cent stake in the commercial bank. Being assisted by Goldman Sachs, the vendor aims to complete the sale by the middle of this year.

ANZ has in total invested AUD 568 million (USD 414 million) in SRBC, having purchased a 19.9 per cent stake in 2007 and subsequently provided additional capital three years later. Apart from the soon to be realised capital gain, ANZ has also yielded AUD 1,300 million of equity accounted earnings and AUD 178 million in dividends from SRBC during the nine-year investment period.

Commenting on the transaction, ANZ’s chief executive Graham Hodges said that the sale reflects the bank’s strategy to simplify its business and improve capital efficiency. The group will subsequently focus on its institutional banking business in Asia, which includes major Chinese cities such as Beijing, Shanghai and Guangzhou, he added.

The announcement coincided with ANZ’s ongoing plan to dispose of its retail and wealth management businesses in Singapore, Hong Kong, mainland China, Taiwan and Indonesia. Singaporean bank DBS, which is aiming to tap into ANZ’s existing customer base to enhance its market position in the region, agreed to acquire the assets in October last year.

Rationalising his decision on the DBS deal, ANZ chief executive Shayne Elliot said: “Having looked carefully at the business in recent months, it is clear the environment we face has changed and to make a real difference for our retail and wealth customers, we would need to make further investment in our Asian branch network and digital capability,” maintaining that such additional expenditure does not make sense considering ANZ’s competitive position and the returns available. The scale down stands in stark contrast to the expansion policy implemented by Elliot’s predecessor Mike Smith, who pushed for an aggressive Asia-oriented strategy during his tenure, the Wall Street Journal reported.

ANZ is not the only major Australian bank trimming overseas operations recently. In July 2015, the National Australia Bank (NAB) sold a 23.9 per cent stake in US bank Great Western Bancorp via a secondary offer worth USD 325 million as it sought to focus on its Australian and New Zealand businesses. The deal also saw Great Western repurchasing a further USD 60 million-worth of its own shares from NAB. In another transaction last year, the Australian institution successfully spun off a 25.0 per cent stake in UK-based Clydesdale Bank on the London Stock Exchange and the Australian Securities Exchange for GBP 396 million and concurrently demerged the remaining 75.0 per cent interest to its shareholders. 

© Zephyr