ANZ's angst over a new master of Asia

There’s an interesting question that flows from ANZ Banking Group’s search for a replacement for the former chief executive of its international and institutional banking business, Alex Thursby. What if Mike Smith doesn’t get his man?

The appointment of the executive responsible for leading ANZ’s Asia Pacific, Europe and America’s businesses (who could be a woman) is a critical one for the group, given its 'super-regional' Asian-focused growth strategy.

The talk in banking circles is that Smith, with his own deep experience of Asian banking and knowledge of bankers in the region, has a very specific list of candidates for the role. The (perhaps apocryphal) story doing the rounds is that Smith gave his executive search firm a list of five or six names and said: ‘’Now go get me one of them.’’

Almost inevitably, Smith would be looking at senior bankers within the region’s biggest banks – HSBC, Standard Chartered and Citigroup.

Equally inevitably, if Smith can convince a senior banker to leave one of those groups they will instantly become one of the favourites to succeed Smith himself when he retires, which he says will be in two or three years’ time.

When Smith became ANZ chief executive in 2007, replacing John McFarlane, it was quite obvious that ANZ had hired someone overqualified for the role as it was then defined. Smith was Asian head of HSBC, of the region’s biggest banking network, as well as the group’s global head of commercial banking.

His appointment was a clear statement of ANZ’s Asian intentions, which he has subsequently developed into the super-regional strategy. Today about 20 per cent of ANZ’s revenue is generated within the APPEA businesses. Smith’s goal is to originate 25-30 per cent of group earnings outside Australasia by 2017.

ANZ has invested too much capital, time and credibility in its Asian strategy to put it at any risk and therefore its succession planning has to ensure that it has in place someone, or several someones, with a depth of understanding of Asia and Asian banking to succeed Smith.

Thursby, a former senior managing director and head of corporate banking at Standard Chartered who Smith credits with having played a pivotal role in having built ANZ’s Asian business, could have fitted the bill but left the group to become chief executive of the National Bank of Abu Dhabi.

Internally, chief financial officer Shayne Elliott and the highly-regarded Asia Pacific chief executive, Gilles Planté, have been touted as potential chief executives but neither has the kind of deep, hands-on and front-line banker’s experience and the long-term relationships with Asian customers that Smith brought to the role. While Planté is acquiring that experience, the relatively short timeframe before Smith retires works against him.

Given that the super-regional strategy is a work in progress and still will be if Smith does retire within the next two or three years, one would expect Smith and his board to see long-term and senior Asian banking experience as an essential prerequisite for their head of APPEA and for Smith’s eventual successor.

Smith’s own background, and that of many of the senior team he and Thursby put together, was insurance against the risk of the strategy of aggressively expanding into Asia. The measured approach Smith has adopted to implementing the strategy has dispelled the market’s initial concerns about the level of risk it entailed.

The ANZ board will be well aware that the need for the continuing insurance against the risks of operating in very different environments (and for continuing to reassure the market) will increase when Smith does retire, given how significant a proportion of the group’s balance sheet will be exposed to the region by then.

If Smith can’t land his man (or woman) there would be a very big question mark over the Asian strategy and the perceived risk of maintaining it. Given Smith's intimate knowledge of Asian banking and the region’s senior bankers – and the extent of ANZ’s need – however, it would seem an unlikely outcome.