Of all the bank shares I have owned -- some long forgotten, like Advance Bank and Challenge Bank -- the one I view with most affection is the ANZ. It was steady, reliable and unlike some -- such as Westpac -- virtually immune from convulsions. During my time in Taiwan, it was the only Australian bank represented in island China, under the steady hand of Chris Mouat, who ran a sound and profitable business. The ANZ could always be relied on to come to the party and represent Australia (and New Zealand) in community events. Although the ANZ is the smallest of the Australian banking system's Four Pillars, it has always punched above its weight, especially in business banking.
The ANZ is the descendant of the English banks that once had a good share of the Australian banking market. Stock pickers with long memories may recall that the ANZ was at one time quoted in pounds sterling. In what was then the largest merger in Australian banking history, the ANZ merged with the English, Australian and Scottish Bank (ES&A) in 1970. The merged group's finance company -- finance companies are another relic of history --memorialised the merger partner with the name Esanda.
The ANZ has always been a very Melbourne bank, very preppy, as they say in the US. Go into a Westpac branch after lunch and ties are usually at half mast. ANZ staff are spick and span, nice calming blue themed uniforms, efficient and courteous service -- polite without being overly familiar.
But the ANZ has decided its destiny belongs in Asia. In 1984, it picked up for a song the run down Grindlays Bank, which was at that time the largest non-government bank in India. Grindlays was run by English public schoolboys who looked impressive on paper but ran the bank into the groundthe ANZ people overcame the deference we colonials naturally feel for such people, they realised these chinless wonders were basically incompetent. Once they took Grindlays in hand, it started to perform well. The bank looked like it had a good foundation for its Asian strategy.
Then, lo and behold, new ANZ CEO John McFarlane sold off Grindlays to Standard Chartered Bank to 'derisk the bank!' Standard Chartered is usually described as an 'emerging markets bank.' At that time, it was about the same size as the ANZ and it is one of the ANZ's main competitors in Asia. So much for the Asian strategy. I got a laugh from the Standard Chartered country manager in Taiwan when I described a Standard Chartered international board meeting in Taipei as 'one of the most important events in Taiwan's financial history.'
Enter Mike Smith, ex-HSBC and Old China Hand. Since taking over as CEO at ANZ in 2007, he has vastly developed the ANZ's Asia business. Any traveler in China can access his or her Australian ANZ account directly via the Construction Bank ATMs that can be found in almost every town in China, just by paying a foreign ATM fee and a small exchange cost. The ANZ has developed its branch network throughout Asia through organic growth and judicious takeovers. While margins are said to be thin, it's doing well.
Perhaps too well. I'd like to see who is lurking in the nominees who dominate the register of every major company. It might not be cost effective for say, HSBC, to bid for the ANZ but Chinese bidders have other priorities besides cost of capital. A Chinese bidder would put the Australian government in a very difficult position. Would it allow one the Four Pillars to be owned by foreign interests? We saw the French take over National Mutual when it got into trouble. No-one is suggesting the ANZ is in the sort of diabolical mess the over-ambitious National Mutual was in. The French wanted National Mutual's Asian business. Like National Mutual, rebadged as AXA, the ANZ does have a very good Asian business. Could the Treasurer knock back China (population 1.3 billion) as he did the Singaporeans (population 5 million) when they came knocking for the Australian Securities Exchange (ASX)?
I believe the Chinese will soon -- if they have not already -- build a significant position in ANZ. You have no doubt heard this before, but the Chinese are patient people -- when it suits them. There are vast oceans of excess capital sloshing around in the Chinese financial system earning negative real rates of return. My understanding is that the Chinese feel that they have been dudded on many of their Australian investments. The ANZ would be a nice bite size acquisition for one of the Big Four Chinese banks who wanted to expand their foreign branch network and gain access to a nice steady earner in Australia.
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