Analysts back ANZ’s Asia exit

Despite spending millions to offload its retail and wealth operations in Asia, ANZ won market support for the deal.

Analyst Brian Johnson said ANZ’s sale of $4.1bn of investments in four Asian lenders may be ‘easier said than done’.

Despite spending hundreds of millions of dollars to offload its retail and wealth operations across Asia, ANZ won market support for the deal amid hopes of better returns from further asset sales and restructuring.

Unwinding some of the Asia presence built up by former chief Mike Smith, ANZ this week agreed to sell retail operations in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank and instead focus on the core institutional business in 15 markets across the region.

While not giving a specific price, ANZ said the assets sold at $110 million above book value. However, various writedowns and transaction costs from separating the operations in the next 18 months would result in a $265m net loss from the sale.

Andrew Triggs, an analyst at Deutsche Bank, said that with the book value at around $1.06bn, the deal was likely being struck at 0.7 times after including the hit from costs such as redundancies.

Goldman Sachs agreed and backed the “strategic merit” in the sale for ANZ.

“While small in the scheme of things and completion is a drawn-out process, the sale represents further progress on simplification and we hadn’t expected a divestment to be executed so soon,” said Mr Triggs.

“The sale price also looks relatively attractive given (returns) well below the cost of capital.”

CLSA analysts said costs — including $167m of capitalised software write-offs, $50m of goodwill write-offs and $45m for branch closures and redundancies — would “consume” sale gains.

Analyst Brian Johnson said ANZ’s planned sale of $4.1bn of investments in four Asian lenders — including Indonesia’s Panin Bank and Malaysia’s AmBan — may be “easier said than done” given they’ve been for sale for some time.

Credit Suisse analyst Jarrod Martin said the level of “unwanted stranded costs” ANZ was saddled with from the deal with DBS highlighted execution risks amid a restructure.

“On the positive side, ANZ is building execution credentials in relation to its business divestment program,” he said ahead of the bank’s update tomorrow on its review of various Australian wealth businesses.

“On the negative side, ANZ faces an issue of dealing with ‘stranded’ indirect costs associated with this business — say $330m — highlighting the immediate execution risks that we see in relation to the ANZ business and cost restructuring story.”

ANZ chief Shayne Elliott said that while he would not shy away from making more difficult decisions to “reshape” the bank, the rate of one-off charges might slow. Along with the $265m Asian retail sale loss, ANZ shareholders have recently worn $360m of “specified item” charges and a $145m provision for a legal case.

ANZ reports annual results tomorrow and brokers expect cash profit to fall to below $6bn while the final dividend slides to 80c. ANZ shares slid 1.1 per cent to $27.55.