Finance

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Shayne Elliott's attempt to unwind Australia & New Zealand Banking Group Ltd.'s Asian expansion appears to be hitting its limits.

ANZ's A$1.84 billion ($1.3 billion) sale of its stake in Shanghai Rural Commercial Bank represents almost half the A$4.27 billion in Asian bank investments on the Australian lender's balance sheet at the end of September. The ANZ chief executive officer will find further disposals much harder to get away.

Its 39 percent stake in PT Bank Pan Indonesia has been on and off the block for more than three years, and a 24 percent share of Malaysia's AMMB Holdings Bhd. has been available to interested parties for almost as long. Neither sale has made much progress.

The withdrawal achieved to date makes a lot of sense. Caught between international banking rules that forced ANZ to set aside more capital against minority stakes and national laws that limited its scope to increase market share, the Asian retail units were always too small to prosper while being too big to forget.

Return to Sender
ANZ's Asian and institutional business has the worst return on risk-weighted assets of all its units
Source: Company presentations
Note: Year-end figures. International and Institutional Division was split in 2016 reporting: figure shown is for institutional unit.

The problem is the one area where Elliott seems determined to hold on: an institutional banking business that's one of the region's biggest yet, if anything, a worse performer than the stuff he's jettisoning.

Banks generally prefer to make loans rather than hold deposits, which makes ANZ's Asian corporate banking unit something of an outlier. Deposits exceeded loans by about A$38.4 billion at Sept. 30, according to a company presentation, contributing to returns on risk-weighted assets that fall well behind the rest of the business.

Giving It Away
ANZ's institutional unit is holding more deposits than loans
Source: Company presentation
Note: Data as at Sept. 30, 2016.

The Asia-Pacific retail banking businesses Elliott wants to exit may be underperformers, but with returns of 1.14 percent they do better than institutional's 0.75 percent.

Shanghai Rural looked, if anything, even better: With net income of 5.81 billion yuan ($835 million) in fiscal 2015 on 358 billion yuan of risk-weighted assets, its risk-adjusted returns were in the region of 1.6 percent, not far behind ANZ's New Zealand retail unit.

Companies looking to restructure tend to sell the undersized businesses for which they can find buyers, and hold onto ones with the scale to match executives' ambitions. While that's an understandable strategy, ANZ's institutional unit continues to suck up capital and spit out only meager returns.

Five years ago, Elliott's predecessor Mike Smith stayed his hand on culling the underachieving Asian retail divisions because of the conviction that some day they would turn into something worthwhile. Elliott should be wary of now making the same mistake with the big end of town.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. ANZ's only other major Asian bank stake, in Bank of Tianjin Co., is now valued at zero after it was classified as an available-for-sale asset following an initial public offering last year.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net