ANZ's wealth opportunity
ING Group needs capital to get the Dutch government off its back - a situation that gives joint venture wealth management partner ANZ an ideal opportunity to buy it out.
There has never been a better time for ANZ Bank to fix its underweight position in wealth management by buying out its joint venture partner ING Group.
ING has just taken €10 billion euros of funding from the Dutch government in a deal that provides significant incentives for ING to raise more capital and get the government off its back.
Selling its Australian joint venture to ANZ would free up about $1.58 billion in capital and give ING an opportunity to remove the yoke of government ownership. Strictly speaking, the ING joint venture with ANZ is not up for renegotiation until 2012.
But extraordinary circumstances such as those prevailing at present could prompt pragmatic responses in the interests of ING and ANZ shareholders.
The joint venture, which trades as ING Australia, was established in 2002 with the objective of achieving a top three position in wealth management. That has not happened.
The joint venture has had a lacklustre performance. When it was struck in 2002 the total funds under management were $38.4 billion compared with $41.89 billion at September 2008. However, the 2002 numbers included $4.7 billion in the V2 cash management trust.
Even after stripping out the V2, which is now a cash management account in the retail bank, the performance in terms of growth in funds under management (FUM) has been lacklustre. To have lifted FUM by only $8 billion in six years is less than stellar. ING Australia's FUM is about a quarter of the level of Commonwealth Bank at $152 billion.
ING Australia's profit has risen from $187 million in 2002 to $253 million in 2008, growth of about 5 per cent a year.
The value of ING Australia has gone backwards. In 2002 ANZ's 49 per cent shareholding in the joint venture was valued at $1.84 billion. Today it is worth $1.58 billion.
The latest results included some big outflows across a range of products and a big hit from being forced to meet capital guaranteed obligations on a closed book of business.
Profit was down 20 per cent to $253 million including the capital investment impact.
A positive aspect of 2008 is that together ING and ANZ rank number two in the number of aligned financial advisors with 1,519 advisors. It is also a leading provider of life risk. It is ranked number two with total of $875 million of risk in-force premiums, up 17 per cent on 2007.
The joint venture has been plagued with difficulties. Former chief executive John McFarlane was repeatedly forced to defend the bank's decision to sell half its wealth management business to a competitor, thereby losing its ability to act swiftly and independently.
McFarlane often lamented that ANZ was "underweight” in wealth management. Its sub-scale position will become even more obvious with the merger of Westpac and St George. CBA dominates the industry and NAB is well ahead of ANZ.
New CEO Mike Smith said on Thursday that ANZ and ING needed to "work the business a little harder”. He said the joint venture had not used the available distribution capacity.
He said: "There have been series of philosophical differences that had been resolved. We are much more on the same page.”
The comments suggest that ING Australia will make better use of the ANZ bank branch distribution network.
Under the terms of the joint venture ANZ gets 100 per cent of the margin from sales through ANZ branches and 49 per cent of the margin generated through equity owned advisor networks and the product manufacturing and administration platforms.
But the latest figures show that ANZ branches accounted for 28 per cent of retail funds sales in 2008 and 12 per cent of life insurance sales.
ING financial advisors only sold 20 per cent of retail funds while direct sales were 7 per cent. Life insurance sales were 34 per cent direct and 44 per cent through the open market.
As recently as last month ING Group Asia-Pacific boss Hans van der Noordaa said ING's 51 per cent shareholding in ING Australia was not for sale. But that was before ING became reliant on the government for funding.
ING has just taken €10 billion euros of funding from the Dutch government in a deal that provides significant incentives for ING to raise more capital and get the government off its back.
Selling its Australian joint venture to ANZ would free up about $1.58 billion in capital and give ING an opportunity to remove the yoke of government ownership. Strictly speaking, the ING joint venture with ANZ is not up for renegotiation until 2012.
But extraordinary circumstances such as those prevailing at present could prompt pragmatic responses in the interests of ING and ANZ shareholders.
The joint venture, which trades as ING Australia, was established in 2002 with the objective of achieving a top three position in wealth management. That has not happened.
The joint venture has had a lacklustre performance. When it was struck in 2002 the total funds under management were $38.4 billion compared with $41.89 billion at September 2008. However, the 2002 numbers included $4.7 billion in the V2 cash management trust.
Even after stripping out the V2, which is now a cash management account in the retail bank, the performance in terms of growth in funds under management (FUM) has been lacklustre. To have lifted FUM by only $8 billion in six years is less than stellar. ING Australia's FUM is about a quarter of the level of Commonwealth Bank at $152 billion.
ING Australia's profit has risen from $187 million in 2002 to $253 million in 2008, growth of about 5 per cent a year.
The value of ING Australia has gone backwards. In 2002 ANZ's 49 per cent shareholding in the joint venture was valued at $1.84 billion. Today it is worth $1.58 billion.
The latest results included some big outflows across a range of products and a big hit from being forced to meet capital guaranteed obligations on a closed book of business.
Profit was down 20 per cent to $253 million including the capital investment impact.
A positive aspect of 2008 is that together ING and ANZ rank number two in the number of aligned financial advisors with 1,519 advisors. It is also a leading provider of life risk. It is ranked number two with total of $875 million of risk in-force premiums, up 17 per cent on 2007.
The joint venture has been plagued with difficulties. Former chief executive John McFarlane was repeatedly forced to defend the bank's decision to sell half its wealth management business to a competitor, thereby losing its ability to act swiftly and independently.
McFarlane often lamented that ANZ was "underweight” in wealth management. Its sub-scale position will become even more obvious with the merger of Westpac and St George. CBA dominates the industry and NAB is well ahead of ANZ.
New CEO Mike Smith said on Thursday that ANZ and ING needed to "work the business a little harder”. He said the joint venture had not used the available distribution capacity.
He said: "There have been series of philosophical differences that had been resolved. We are much more on the same page.”
The comments suggest that ING Australia will make better use of the ANZ bank branch distribution network.
Under the terms of the joint venture ANZ gets 100 per cent of the margin from sales through ANZ branches and 49 per cent of the margin generated through equity owned advisor networks and the product manufacturing and administration platforms.
But the latest figures show that ANZ branches accounted for 28 per cent of retail funds sales in 2008 and 12 per cent of life insurance sales.
ING financial advisors only sold 20 per cent of retail funds while direct sales were 7 per cent. Life insurance sales were 34 per cent direct and 44 per cent through the open market.
As recently as last month ING Group Asia-Pacific boss Hans van der Noordaa said ING's 51 per cent shareholding in ING Australia was not for sale. But that was before ING became reliant on the government for funding.
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