In 2007, Australia and New Zealand Banking Group (ASX: ANZ) CEO, Mike Smith, detailed his ambitious plans for the bank outside of Australia and New Zealand. Fast forward till today and Mr Smith still believes they are on track to deliver 30% of revenue from the 'Super Regional' strategy by 2017, despite the GFC bringing a raft of unexpected capital requirements.
The problem for ANZ, is any minority holdings in financial institutions must be written off against Tier 1 capital requirements under new global banking rules. In the words of Mr Smith: "Quite clearly it is not as capital-efficient to hold minorities."
In Asia, ANZ has holdings in a number of banks, including 39% in Panin Bank Indonesia, 24% of AmBank Group in Malaysia, 17% in China's Bank of Tianjin and 20% of Shanghai Rural Commercial Bank. Mr Smith had previously tried to take the group's holding in Panin Bank Indonesia to a majority, but that was blocked by the major shareholder, the Gunawan family.
However, with its own stand-alone bank already established in Asian countries (which it purchased in the fallout of the GFC from Royal Bank of Scotland), it's increasingly likely that ANZ will reduce its holding in Panin Bank. "We have reached the stage where we do need to do something about it because it is quite a significant amount of money tied up," Mr Smith told The Australian Financial Review.
Likewise, ANZ's Bank of Tianjin holding is one the group would like to sell down, after its ownership was diluted because it did not participate in a capital raising in 2012.
With few acquisitive opportunities in the region likely to appear, analysts have begun to expect organic growth from here on. But for Mr Smith, who continually reinforces his contention that Asian markets will be extremely lucrative, that is fine. He believes the group will easily accomplish its goal of 30% of revenues gathered from the region by 2017, and will not plan for an acquisition, but wait for an opportunity to appear. "If I could do the RBS deal again, that would be great… but the stars have to align. Acquisitions by their very nature have to be opportunistic. You can't plan for them. It is dangerous if you do, because you will do the wrong one."
There have been rumours that ANZ could make a move on Asian heavyweight Standard Chartered (LON: STAN), which has a market capitalisation of around $32 billion. However, analysts consider the deal unlikely.
Foolish takeaway
So where does this leave ANZ shareholders?
ANZ's dominance in the local market has provided the perfect platform for the bank to leverage its Asian expansion. Strength at home will continue to provide a base for solid dividend payments for years to come. But growth is slowing in local markets.
In Asia, I'm glad ANZ isn't making acquisitions for the sake of it. For long-term investors, it's music to our ears when a CEO can stand up and say: "It's too expensive to do the deal." Growth for growth's sake never ends well. Patiently waiting for opportunities to present themselves has proved to be a successful investment strategy for many fund managers over time.
ANZ's corporate and institutional banking operations, and its continually growing retail presence in Asia, provide key long-term growth opportunities. I prefer ANZ stock to any of its Australian peers, including Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA). Although I do believe it is fully valued (for short-term investors) at current prices. To quote Mr Smith one last time: "The [Asia] strategy provides us with a growth opportunity as well as being a yield play, as most banks in Australia are. If you can have growth with return, you have the best of both worlds."
