ANZ’s incoming boss has new D.I.Y. task: Remodel Asian business

by NZ Adviser14 Dec 2015
ANZ’s incoming boss has new D.I.Y. task: Remodel Asian business
(Bloomberg) -- Australia & New Zealand Banking Group Ltd.’s incoming Chief Executive Officer Shayne Elliott likes to spend his weekends renovating his five-bedroom home in the affluent Melbourne suburb of Toorak.

When he takes over the bank in January, the 52-year-old New Zealander will need to roll up his sleeves for something else -- a re-modeling job on ANZ’s underachieving Asian business, which has been a drag on the bank’s profits and share price in recent years.

Elliott is expected to trim, rather than exit, the overseas operations, which consumed nearly a third of the bank’s capital in the year to September, while accounting for less than one- fifth of profits. But he is seen as much less wedded to the aggressive Asian expansion strategy pursued by his predecessor, the outspoken Mike Smith, who has run the bank for the past eight years.

“Once Smith’s gone, it’s Shayne Elliott’s right to change it,” said Simon Burge, chief investment officer of Above the Index Asset Management, who oversees A$450 million including ANZ shares. “He’s not the bastion for the theme of ‘let’s go to Asia regardless of what it costs.’ I wouldn’t be surprised if he dials back in Asia.”

Elliott, who has been the bank’s chief financial officer since 2012, already flagged his focus on improving Asian returns in October, when the bank reported its slowest growth in annual profit since 2008.

Hard decisions
ANZ said Oct. 29 it would cut about A$9 billion ($6.5 billion) of low-yielding trade finance exposures in Asia by not extending some loans that have matured, and will look to reduce its corporate loan book in the region. Instead, the bank will aim to expand its cash transaction business in areas such as cross-border payments, collections and investment services for clients. Elliott may also look to sell some of the company’s shareholdings in Asian banks to release capital.

The recent plunge in commodities prices and the slowdown in China have hurt trade finance and other ANZ operations in Asia, and raised questions over Smith’s expansion plans, which more than doubled the number of Asian corporate clients in the past seven years and almost tripled the number of employees in the region to 21,000.

“We’ve taken some hard decisions around the trade business in particular, which is a really competitive business in Asia,” Elliott told reporters on an Oct. 29 conference call, about four weeks after his promotion was announced. “From time to time, it’s a great business, and when we have excess liquidity, we can participate.”

As ANZ’s rivals maintained their focus on their domestic businesses, at a time when property prices in Australia and New Zealand have surged, the contrast in terms of share-price performance and returns has become sharper.

ANZ shares are down 18 percent this year, outpacing Commonwealth Bank of Australia’s 7.4 percent drop and the 10 percent slide in the country’s bank index.

Exchange filings show that ANZ posted a return on equity for the year ended Sept. 30 of 14 percent. By contrast, larger competitors Commonwealth Bank and Westpac Banking Corp. garnered ROEs of 18.6 percent and 15.8 percent, respectively, in their most recent financial years.

“ANZ needs to have a glorious Asian exit,” said Brett Le Mesurier, a Sydney-based analyst at APP Securities. “The institutional business in Asia has an extremely low return way below the cost of capital. I always thought they had an insufficient strategic advantage to generate the return.”

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