ANZ goes after Citi in Asia

ANZ’s institutional banking chief Andrew Géczy throws down the gauntlet to global rivals as he looks to win market share, talent and deliver ROE at 13%.

Australia’s ANZ is winning institutional banking market share and poaching talent from rivals across Asia by making the most of its regional footprint and taking advantage of the mounting regulatory burden on global rivals.

On Wednesday senior ANZ executives told a group of around 50 analysts and investors in Hong Kong that they scented weakness at Citi, Standard Chartered and HSBC and were poised to reap returns on their regional build out.   

“I see Citi, Standard Chartered and HSBC as the people to go after,” said Andrew Géczy, ANZ’s chief executive of international and institutional banking (IIB) and a former Citi banker.

Géczy also gave “a through-the-cycle” ROE estimate of 13% for his business, the bank's second-largest division, and said performance was two years' ahead of management's expectations. Goldman Sachs' had estimated ROE at 12% in the first half of the year. 

Most analysts were pleasantly surprised but some remained sceptical. "While impressive, we would question whether this was a little rose-coloured, particularly given the significant reform agenda that must be delivered across the region to see the next leg of growth and avoid the middle income trap," said Michael Wiblin, an analyst at Macquarie commenting on the ROE target of 13%. 

Mike Smith, ANZ's group CEO, has diversified the revenues of Australia’s third-largest bank by market value into faster-growing markets over recent years. This so-called super-regional strategy has been controversial, with some investors saying the cost of expansion is diluting ANZ's ROE, while others have applauded the move outside Australia's mature market.

Smith's group ROE target of 16% by 2016 has come under additional pressure as regulators make greater capital demands on the bank.

Banks such as HSBC, Citi and Standard Chartered have been building scale in the region for around a century but have recently been beset by a raft of new rules and more vigilant regulators.

HSBC was fined almost $2 billion for failing to stop money laundering in Mexico; US regulators fined Standard Chartered $667 million for violating sanctions on Iran, Sudan, Libya and Myanmar.

“When I look at them I see big problems that have nothing to do with Asia. I see Mexico, I see big problems with regulatory changes in the UK and Europe with CRDIV [capital requirements directives] infecting their Asia business and cost income ratios,” said Géczy who joined ANZ last year. 

Géczy is responsible for ANZ’s global institutional business as well as the retail and commercial businesses across 14 Asian markets and 12 countries in the Pacific as well as Europe, America and the Middle East. 

ANZ is ranked fourth in Greenwich Associates’ corporate banking index in Asia, up from twelfth in 2009 and from outside the top 20 six years ago, the fastest assent in the history of the data provider’s index, which has been running since the 1960s.

HSBC, Standard Chartered and Citi are still above them in the Greenwich rankings but ANZ executives said at the briefing that they are closing in on Citi in third position.

Research firm East & Partners confirmed that ANZ had been taking market share this year in transaction banking and trade finance. ANZ overtook JP Morgan and moved into eighth place in terms of transaction banking wallet share allocated to them as secondary banks according to East & Partners’ preliminary findings.

“This notion of the global transaction bank that services clients in all countries, we tried to build that at Citi in the nineties, it doesn’t work, customers don’t want it,” said Géczy.

Other ANZ executives said that the Australian bank has benefited from companies' fear of dependence on a few global banks since the global financial crisis.

A source at Citi responded by pointing out ANZ's lack of presence in places of high importance for Asian corporates, such as Africa for resource-hungry Chinese companies. He also noted he had not heard of many high-level defections from Citi to ANZ.

Roll on returns

Since the global financial crisis, banks’ return on equity ratios have plummeted as regulatory costs have risen and proprietary trading desks have shrunk.

Other banks have tried to build a network in the fast-growing economies of Asia but struggled to fund that expansion when markets turned south at home.

Géczy is ahead of schedule

“The established competitors are focused on problems in other parts of the globe so they don’t have the resources to invest and the emerging Asian competitors that are building up their businesses are probably doing it a few years too late,” said Géczy, who added that ANZ in Asia has maintained a self-funded, highly-liquid and low risk balance sheet.

ANZ’s Asia loan book has on average suffered fewer defaults than the Australian book; the average tenor of loans is about one year due to the heavy proportion of trade finance, he said.

“IIB ROE is now above the group cost of capital and Mike tells me that is tracking about two years ahead of what he originally had expected,” said Géczy. He did not say what the cost was or by how much it had been exceeded. Another ANZ executive said the cost was 11%. Analysts at BBY said the extent of the achievement was probably minor as it was not spelled out.  

One analyst at the briefing asked why should Australian investors back ANZ when 25% of IIB is only going to return 13% through the cycle when Westpac and CBA, which are more stay-at-home with high-return mortgage businesses, were delivering 15.3% to 18.6% returns on equity respectively.

Credit Suisse said 13% was a bit modest and ANZ should be aiming at 15%.

ANZ executives said banks have a mix of businesses with different growth and return profiles. They said that the bank was shifting away from establising a footprint and relationships, after around six years' of building a platform, to leveraging the network. They stressed ANZ benefits from a strong home base and that management was refining strategy and focusing on key corridors of business such as iron ore shipments from Australia to China. 

Besides, they said, ANZ is about to get a kicker from rising interest rates: every 1% hike in rates in the region will bring an additional A$100 million in revenues. 

Géczy added that only a few financial institutions could bank companies well intra-Asia and not be distracted by business elsewhere. “We’re the right size. We’re in 33 markets; we’re not like Citi in 102.”

“I see the scale back in what was a big technology spend to build large global banks and what that means when there isn’t enough flow between developing and developed markets – so they have challenges,” he added.

He said ANZ's Asia Pacific Europe and America (APEA) operations were very close to its goal of contributing 25% to 30% of total earnings by 2017. APEA delivered 19% in the first half and Asia alone contributed 14%.  

War for talent
The rivalry does not stop at taking banking customers. ANZ has also been poaching bankers from its global rivals in recent years as it has built up across Asia.

In May ANZ poached Farhan Faruqui, Citi’s head of global banking for Asia-Pacific, to be its chief executive of international business. His gardening leave ends August 1.

“We’re able to make those connections happen better in Asia because we don’t have the problems in North America and Europe to address that take our eye off the ball. That’s why I can attract people to come and work at my bank,” Géczy said.

Asian banks' regional expansion: Late to the game?
Click for full view. Source Moody's


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