Flush with cash, ANZ faces pressure to hand some back
Sydney Morning Herald
Monday September 28, 2009
DAYS after it seized full control of its wealth management joint venture from ING, pressure remains on ANZ to push ahead with further acquisitions or return some of its billions in surplus cash to investors.The comments by analysts follow ANZ bringing forward a deal to move to full ownership on its ING Australia wealth management joint venture under a $1.76 billion buy-out.The deal, detailed on Friday, will fill a long-standing strategic gap in ANZ's business mix, where less than 6 per cent of earnings were generated from the fast-growing wealth management sector, which includes funds management and life insurance. Still, acquiring the 51 per cent stake in ING Australia it did not own will put only a mild dent in ANZ's surplus capital, following a capital-raising of about $4.7 billion earlier this year.ANZ's Tier One ratio is expected to dip to 9.5 per cent following the deal, which is still nearly 1 percentage point above its rivals.A Credit Suisse analyst, James Ellis, believes ANZ could end up with a $4 billion cash pile if banks see their Tier One ratios drift back to 8 per cent. It is this surplus cash that is likely to keep ANZ's rates of shareholder returns below its bigger rivals.Mr Ellis labelled the ING deal as a positive for ANZ on strategic and financial fronts. However, he cautioned that moving to full ownership would not necessarily deliver a silver bullet for ANZ in wealth management, given the business has underperformed other bank-owned wealth arms for years.ANZ's buy-out of ING has come at a time when wealth management businesses were trading at their lowest in recent years. The asking price of $1.76 billion represents about 11 times last year's earnings.This is about half the rate of recent transactions and compares with the $3.7 billion ANZ tipped into the initial transaction, representing a hefty 20 times earnings.Ironically, the discounted valuation of ING after ANZ's full purchase will force the bank to write down its existing 49 per cent stake by about $150 million.The high multiples paid to set up the business in 2002 meant the venture had struggled to meet ANZ's internal return targets. However, it is understood frustrations intensified when the bank recently considered a move on the Australian life management assets of Aviva.ING was cool on a deal. Even if ANZ had opted to go it alone on Aviva, about half of its assets would still have been tipped into the wealth joint venture. National Australia Bank eventually bought Aviva.The ratings agency Standard & Poor's said the deal was unlikely to increase ANZ's balance sheet risk or affect its AA credit rating.
© 2009 Sydney Morning Herald
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