ANZ Deal To Acquire RBS Assets Imminent

Post by Sharat on August 3, 2009 · Under Business News, Capital Markets, Company News, International Business News, Mergers & Acquistions, banking · Comment

Australian banking major Australia & New Zealand Banking Corporation (ANZ) is likely to acquire a few selected Asian assets of troubled UK lender Royal Bank of Scotland (RBS) for $900 million, despite the fact that RBS made a loss in the region last year.

ANZ will purchase RBS’s assets in Singapore, Hong Kong, Indonesia and Taiwan, Vietnam and The Philippines, which is consistent with its strategy of converting into a super regional bank. However negotiations for the purchase of the assets hit a stumbling block in Hong Kong over the weekend.

Sources close to the negotiation said that the problem would not derail the deal, but meant that an announcement could not be made in time to coincide with RBS’s half year results and would more likely occur next week.

The assets which RBS has put up for sale including businesses in India, China and Malaysia, most likely to be acquired by British banking group Standard Chartered produced a $98 million combined loss in 2008.

According to a research report by JP Morgan, the Asian businesses suffered from rising bad debt, inefficiencies driven by a lack of scale in markets they operated in, and high group cost obligations.

Analysts have said however that this underlined the relative attractiveness of the deal to ANZ, which would expand the size of its footprint, through the combination of the assets with its existing businesses in the region and adding “modest volumes” to regional hubs it has established in Hong Kong and Singapore.

Mike Smith chief executive of the Australian banking group has on more than one occasion expressed his ambition of converting ANZ from an Australian banking giant into a super-regional bank that contributes one fifth of a projected $8 billion annual profit by 2012.

The lender currently has $35 billion in shareholder funds, of which $5.5 billion had already been allocated to Asia according to JP Morgan banking analyst Scott Manning, meaning that a deal for ANZ would be “meaningful but not transformational”.

According to Mr. Manning the acquisition price could be broken down into $400m for the RBS assets, $350m for the deposits and $150m for wealth management earnings.

Whilst the assets under consideration would certainly aid ANZ’s Asian expansion strategy, Mr. Manning said that both China and India would be the real drivers of its goal to transform into a super-regional bank.

Mr. Manning said that ANZ’s institutional business was key, accounting for 60 per cent of revenue, 67 per cent of profit and 77 per cent of assets.

Each individual business including its institutional, retail and wealth management operations, have customer deposits which exceed assets, which means that its businesses are self funding and do not drain group resources.

“This is consistent across many Asian geographies, where loan-to-deposit ratios are typically below 100 per cent,” Mr Manning said.

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