ANZ’s India Option

Post by NeilMc on October 6, 2009 · Under Business News, Company News, International Business News, Mergers & Acquistions, banking · Comment

The collapse in talks between emerging market power house Standard Chartered and Royal Bank of Scotland (RBS) over the sale of the latter’s banking assets in China, India and Malaysia may present another opportunity for Australian banking major ANZ to expand its business in Asia still further.

A couple of months ago, ANZ acquired RBS’s banking assets in Taiwan, Hong Kong, Singapore and Indonesia amongst others. The cost of the acquisition was $687 million, a price that could be best described as being a bargain.

In spite of ANZ’s recent $1.8 billion acquisition of partner ING’s 51 per cent stake in their Australian wealth management joint venture, ANZ’s Tier 1 capital ratio still remains at 9.5 per cent.

This presents an issue for ANZ, which has to ponder whether to return to excess capital sitting on its balance sheet, or use it to finance a war chest for further acquisitions.

RBS had initially put up its Chinese, Indian and Malaysian banking assets for sale, as a separate package for US$200 million. With negotiations hitting a deadlock, and Standard Chartered baulking at the purchase price, it is extremely possible that RBS may now choose to sell off the respective businesses individually.

ANZ chief Mike Smith, has previously said he was uninterested in the RBS’s Chinese business, unless they came with full regulatory approvals and requisite banking licenses.

ANZ has a fairly robust China strategy in place already, with strategic holdings in Chinese lenders, a few joint ventures, and a wholly owned subsidiary, one of a handful of international banks, with a wholly owned Chinese subsidiary.

The same could not be said however of its Indian strategy. The Indian assets of RBS could be of particular interest to ANZ. ANZ curiously exited India at the very start of the decade, selling its venerable ANZ Grindlay’s franchise to none other than Standard Chartered, a decision it probably regrets today.

The acquisition of RBS’s ABN Amro franchise, with its existing branch network in that country, would give ANZ a solid platform from which to grow.

An acquisition of RBS’s Indian business would only make sense however, if it too came with a full banking license from the Reserve Bank of India.

International banks in India are severely limited in the number of branches they can open every year. Regulation is used as a method of protecting the domestic banking industry, allowing domestic banks to grow quickly, whilst limiting the growth potential of international rivals.

A purchase of RBS’s businesses would allow ANZ to leapfrog perhaps a decade of development, and compete with its international peers on a relatively level playing field in that country. This coupled with the fact that an acquisition opportunity that comes with a full branch network in India are few and far between, makes an acquisition of RBS’s Indian business, at least from the outside, seem like a particularly attractive option.

ANZ would like to become one of the top four foreign banks in greater China and India, and to be a top four bank in Malaysia, Vietnam and Indonesia. Asian expansions is part of ANZ chief Mike Smith’s stated ambition of becoming a super regional lender, which obtains 20 per cent of its profits internationally.

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