Shares in Australia and New Zealand Banking Group (ASX: ANZ) have traded flat this week after the group announced the effective of end of its Asian super regional strategy implemented by prior CEO Mike Smith.
The group will sell its retail banking and wealth management businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore's DBS Bank and I expect it's looking to offload its remaining retail banking operations in Vietnam, Cambodia, Japan and the Philippines.
ANZ will retain its focus on the more profitable segment of institutional or business banking across Asia where it provides vanilla banking and commercial lending services to businesses alongside more exotic debt products for companies via capital debt markets, bond issues, syndicated lending, and other specialised project or structured finance.
The decision to dump the retail banking segments is part of a wider strategy to improve the bank's capital adequacy ratio and return on equity via restructuring or asset sales rather than cutting dividends or issuing debt or equity to raise new capital.
Mike Smith's decision to enter retail banking markets such as Vietnam, Cambodia and Thailand was a gamble given South East Asia's minefield reputation where banks have previously risen and fallen with more predictability than ocean tides. The 1997 Asian banking crisis making the GFC look a walk on the beach, with huge macro and credit risks in Asia's emerging markets still existing you can see why new CEO Shayne Elliot is beating a retreat.
Since taking the reins Mr. Elliot has also been keen to promote his forward-thinking credentials by appointing Google executive Maile Carnegie as the bank's head of digital banking and innovation. Moreover, its management recently took the unusual step of picking a fight on Twitter with a broker over the appointment of its new chief financial officer. This looks another sign that the new CEO is keen to demonstrate his street credibility.
Outlook
Dividend-focused investors could do a lot worse than buying shares in ANZ or its rivals such as National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA). The primary risks being stricter capital adequacy requirements being handed down by APRA via the Basel Committee, or a significant downturn in the Australian housing market.
