Royal Bank of Scotland assets to cost ANZ $900mFont Size: Decrease Increase Print Page: Print Richard Gluyas | August 03, 2009
Article from: The Australian
ANZ Bank is likely to pay about $900 million for select Royal Bank of Scotland assets in Asia, despite the RBS group businesses in the region making a loss last year.
ANZ's purchase of the vendor's operations in Hong Kong, Singapore, Taiwan, Indonesia, The Philippines and Vietnam, as part of its super-regional strategy, was to coincide with RBS's half-year result on Friday, or earlier. However, negotiations in Hong Kong over the weekend hit a snag.
The unspecified problem, while not considered a "deal-breaker", could mean the timing of any announcement slips into next week.
The RBS assets on the block, including businesses in China, India and Malaysia that are likely to be bought by Standard Chartered, made a pound stg. 49m ($98m) loss in 2008.
They were weighed down by rising loan impairments, inefficiencies due to lack of scale and group cost obligations, according to a research note by JPMorgan.
But analyst Scott Manning said this underscored their attractiveness to ANZ, which could expand its footprint by bolting the businesses on to its existing assets, as well as adding "modest volumes" to regional hubs it had set up in Singapore and Hong Kong.
ANZ chief executive Mike Smith's super-regional strategy assumes Asia will contribute one-fifth of $8 billion in group profit by 2012.
About $5.5bn of the bank's $35bn in shareholder funds were already allocated to the region, according to Mr Manning, making the RBS a "meaningful but not transformational" transaction.
He broke the estimated purchase price down to $400m for the RBS assets, $350m for the deposits and $150m for wealth management earnings.
While the assets would help fill out ANZ's expansion, Mr Manning said China and India would have to remain a key focus for some time if the bank were to realise its super-regional strategy.
He said the ANZ institutional business was the driver of the strategy, accounting for 60 per cent of revenue, 67 per cent of profit and 77 per cent of assets.
However, each business stream, including institutional, retail and wealth management, had a level of customer deposits that was in excess of assets, ensuring the operations were self-funding and not a drain on the group.
"This is consistent across many Asian geographies, where loan-to-deposit ratios are typically below 100 per cent," Mr Manning said.
He said return on capital for ANZ's businesses in Asia had improved to the "low teens", due to revenue growth being greater than cost increases, with minimal growth in lending assets.
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