In my opinion, Australia and New Zealand Banking Group (ASX: ANZ) will be the quickest growing big four bank in the next two decades.
Despite underperforming its largest peer, Commonwealth Bank of Australia (ASX: CBA) and the broader S&P/ASX 200 Index (INDEXASX: XJO) in 2014, so far, ANZ is quickly laying the foundations for a more prosperous future.
Whilst the past two decades have been dominated by a housing boom, benefitting CBA and Westpac Banking Corp (ASX: WBC) the most; and a mining boom which fuelled foreign investment, the medium-term outlook for the Australian economy isn’t looking as strong as what we’ve become accustomed to.
What’s more, since the GFC, Australia’s biggest banks have relied too much on the mortgage market and were forced to grow earnings via the consolidation of smaller lenders (think RAMS, Bankwest etc.). In coming years, it’s unlikely the banking regulator will allow such acquisitions to take place, thus cutting off the big banks’ two easiest growth strategies.
Fortunately ANZ is not in the same predicament. Since 2007, ANZ’s CEO Mike Smith has been happily pursuing the bank’s ‘Super Regional Strategy’ with modest success. In the first half of the 2014 fiscal year, the bank drew over 19% of FX-Adjusted cash profit from the markets of Asia, the Pacific, Europe and America (APEA).
By 2017 Smith has a goal of deriving 25% to 30% of group revenues from APEA markets.
Whilst Australian businesses have a terrible track record of international expansions (I’m looking at you, QBE, Insurance Australia Group and National Australia Bank Ltd (ASX: NAB)), ANZ appears to have what it takes to succeed.
For example, when rumoured to be eying a big acquisition in Asia (to boost foreign earnings), Smith’s declaration that Asia’s banks were priced at “ridiculous” levels assures investors he’s not pursuing growth for growth’s sake.
To buy, or not?
As much as I like ANZ’s prospects going forward (both domestically and abroad) I believe the bank is expensive. Whilst in 2014 (remember it doesn’t report full-year results until October 31), I expect it to announce earnings and dividends per share growth of around 15%, I believe the best time to buy banks (and any stock for that matter!) is when mum and dad investors are running for the sidelines. So, unless an investor has been living under a rock for the past three years, they’d know the time to buy bank stocks is not now.
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Motley Fool Contributor Owen Raszkiewicz has May 2018 $8.60 Call warrants in QBE Insurance Group.