Australia and New Zealand Banking Group (ANZ) has ended months of speculation by announcing that it has bought a selection of Royal Bank of Scotland's (RBS) Asia assets.
ANZ will pay $500 million plus a $50 million premium for select RBS assets in Hong Kong, Indonesia, the Philippines, Singapore, Taiwan and Vietnam. The total price is about 1.1 times book value.
Specifically, the bank is acquiring RBS's retail and commercial businesses in Hong Kong, Indonesia, Singapore and Taiwan, and its institutional business in the Philippines, Taiwan and Vietnam. These include 54 branches, loans worth $3.2 billion, deposits worth $7.1 billion and approximately two million clients.
"The acquisition of these RBS businesses is a further stepping stone in our super regional strategy," said Michael Smith, chief executive of ANZ. "The acquisition is consistent with our strategy and involves the businesses that we wanted from the RBS sale process."
Credit Suisse advised ANZ on the deal, while Morgan Stanley advised RBS.
ANZ and RBS shares rose in trading yesterday; ANZ by 1% to A$19.57 ($16.44) in Sydney and RBS by 1.3% to £0.4689 ($0.79) in London.
ANZ already has a presence in each of the markets involved in the acquisition, and was generating approximately A$1.8 billion in annual revenues from these countries. Combined with the RBS assets, revenues should grow to nearly A$2.4 billion.
"RBS is going to add a fair amount of gravitas," said Smith. "It's going to give us a fair amount of critical mass from which we can expand further into some of these critical markets."
This growth is in line with the bank's "super regional" strategy that calls for Asia contributing 20% of net profit after taxes by 2012.
Notably absent from ANZ's purchase were China and India as well as RBS's wholesale banking business. Smith explained that the bank's organic growth in China was developing well and that for RBS's asking price it "would have been difficult to develop true value" from its assets in the country.
With regards to India, Smith emphasised ANZ's pending banking licence and a lack of resources for the decision not to acquire RBS's business there. "I'd love to be bigger in India, absolutely," he said. "We just have to be realistic. We have to walk before we can run."
Smith hoped ANZ would receive its banking licence by the end of the year.
"ANZ bought the countries where it has clear, strategic interests," said a banker. "Countries that at the price were attractive to shareholders and where it has existing infrastructure and the appropriate licenses."
ANZ has clearly stated that it plans to grow its Asia wholesale banking business, including cash management and trade finance. In his presentation, Smith said the bank plans to have a presence that allows it to be an "insider" on $4.3 trillion in intra-Asian trade flows.
When asked why the bank did not acquire RBS's wholesale business, Alex Thursby, ANZ chief executive for Asia-Pacific, Europe and America, said: "It simply was not for sale."
The bank's acquisition of part of RBS's Asia business is only a step towards its being a truly regional financial player. Smith said a "transformational deal" that could double ANZ's Asia-Pacific revenues is possible in the future. However, he explained that the bank wants to achieve a "critical mass" in the region before such a deal -- likely achieving the 20% of net profit before tax set out in its super regional strategy first.
The sale of RBS's Asia assets had been expected. Which assets would be sold and to whom has been widely discussed in regional financial circles since February when the British bank announced it would "review" its position in 36 of its 54 markets including Asia. In May, ANZ, HSBC and Standard Chartered were reportedly short-listed for the businesses.
"RBS will absolutely retain a strong position in Asia," said Philip Hampton, chairman of RBS, in a report. "We are probably one of the five leading players in wholesale banking markets in Asia-Pacific, and we intend to remain in a top five position."
Remaining assets to be sold include the bank's retail and commercial businesses in China and India as well smaller countries including Kazakhstan and Pakistan. Insiders speculate that Standard Chartered is best poised to acquire some of these assets.
More than half of the bank's Asia business came from its 2007 acquisition of ABN AMRO. According to RBS's 2007 results, commercial and retail banking revenue in Asia grew 76% year-on-year to £209 million on the back of the acquisition.
Last year, RBS wrote down nearly £7.7 billion in ABN AMRO assets. The bank paid £10 billion for them in 2007.