• Tue
  • Jul 29, 2014
  • Updated: 4:43am
BusinessBanking & Finance
BANKING

Despite its regional ambitions, ANZ finds banks in Hong Kong too pricey to purchase

Australia-based bank cites 'overpriced' banksas it shies away from Hong Kong acquisition

PUBLISHED : Tuesday, 14 January, 2014, 10:46am
UPDATED : Wednesday, 15 January, 2014, 8:40am

Australia and New Zealand Banking (ANZ), Australia's third-largest bank by market value, aims to build itself into a regional bank in Asia, but an acquisition in Hong Kong is not part of its plans.

Chief executive Michael Smith said the city's local banks are too expensive for ANZ.

Hong Kong's four family-controlled lenders are seen as attractive targets for firms that want to use the city, the primary offshore yuan clearing centre, as a gateway to the mainland.

Wing Hang Bank, the second-largest of them, is holding exclusive talks with Singapore's Oversea-Chinese Banking Corp for a possible sale this month. Analysts are expecting a price of about twice book value.

If the deal succeeds, it would be the second takeover of a local family-controlled bank in several months. Guangzhou government-backed Yue Xiu offered 2.08 times book value to acquire Chong Hing Bank, the smallest of the four, in October.

Asked about the price Yue Xiu paid to enter the city, Smith said: "It must work for them, but it wouldn't work for us.

"It's too expensive," he told the South China Morning Post at the Asian Financial Forum in Hong Kong on Monday. He said ANZ would not want to dilute its earnings with such an acquisition.

[Yue Xiu’s price] must work for them, but … it’s too expensive
MICHAEL SMITH, ANZ CHIEF EXECUTIVE

ANZ has been looking to buy a local bank in Hong Kong for several years but failed to find one as all its takeover targets were "overpriced", Smith said.

In 2009 the bank paid just 1.1 times book value to buy Asian banking operations previously owned by the Royal Bank of Scotland.

Smith said at the forum that he preferred a regional banking model, which allowed easier control of subsidiaries than an international banking model. It would also allow greater diversification of risk than a domestic bank that only focused on a single market.

Global players have been cutting back their operations after the momentum of market growth slowed in the West and some Asian countries, such as India, South Korea and Indonesia.

Last week, emerging market-focused Standard Chartered announced restructuring plans following slower growth in the top line and losses in South Korea, one of its key markets. HSBC started its massive restructuring programme in 2011.

Smith said ANZ has no plans to follow suit with a cost-cutting exercise.

"We are building rather than having to cut," he said.

"It's a slow-growth world," Smith told the Post. "But the beauty of the strategy is that it is higher growth in the Asia-Pacific, so that's to our benefit."

The vast majority of ANZ's revenue comes from Australia and New Zealand.

"Most countries in the region are doing very well," he said. "A few of them are having elections this year - this is going to slow things a little bit - but otherwise it's OK."

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