Future Fund may be Gonski's past

Reports that Future Fund chairman David Gonski plans to quit to take up the chairmanship of ANZ may read like transition serendipity, but in the game of musical chairs someone has to lose their seat.

It seems former treasurer Peter Costello started the music playing. If the plan goes according to script, Costello takes Gonski's place at the Future Fund - a job Costello has been angling for for more than a year.

He put his hat in the ring previously but had no chance under a Labor government. He missed out last year to Gonski, who was given the job of finding someone for the role - and ultimately recommended himself.

Costello is seemingly spruiking his credentials with a breathlessness that is almost unbecoming. Under the new Coalition regime, Costello is in the box seat to grab the high-profile job at the $90 billion Future Fund. He clearly believes his role in setting it up in 2006 affords him the best odds of getting it. (And he is probably right.)

But the timing is not perfect. Gonski took up the role only last year and the current chairman of ANZ, John Morschel, was elected by shareholders to another three-year term last year. Apparently Morschel wasn't all that keen last year to extend, but there was no obvious replacement. (It makes one wonder whether Morschel would be needed to stay forever if Gonski hadn't become available.)

If Morschel didn't want to remain as chairman of the ANZ for another term he should have been replaced last December.

ANZ is clearly keen to have Gonski rejoin the board and take up the position as chairman. There have been no howling denials from the bank about the rigours of the selection process and the need to canvass more widely.

In a public relations sense Gonski's resume has been updated and the first string to his bow is his extensive knowledge of Asian markets, thanks to having served as a director of SingTel and Singapore Airlines.

Perhaps one important qualification is a demonstrated desire for the job. Gonski spent six years on the board of ANZ - ultimately leaving because the former chairman, Charles Goode, hung onto the job for years longer than he should have.

Thus reshuffle talk, while driven by Costello, also suits ANZ's Asia-obsessed chief executive Mike Smith - who needs as much support at the board level as he can muster in his quest to increase Asian revenues to 30 per cent of the total by 2017.

Whether he is given time or the opportunity to complete this ambition depends on the results. The returns from the Asian region - particularly the institutional business - have been questioned since third-quarter margins have come under increased pressure.

As the bank weighs up further acquisitions in Asia, a new analysis has concluded that ANZ's performance has fallen behind other major Australian banks since it kicked off its regional growth strategy in 2007.

It was a point highlighted in a JPMorgan report last week that questioned the strategy of the Asia expansion over the longer term.

"Since the inception of ANZ's Asia strategy introduced by CEO Mike Smith in late 2007, ANZ has been characterised as a 'growth play', as opposed to domestic-focused major bank peers Commonwealth Bank and Westpac, which have been viewed to be largely constrained by a low domestic credit growth environment," JPMorgan analyst Scott Manning said in the report.

The performance of ANZ relative to Commonwealth Bank and Westpac in terms of return on equity has been inferior.

The Asia strategy is now dividing investors into the believers and the non-believers. The ANZ idea was that colonising the Asian markets would give it access to growth markets.

Potentially it is the execution that has proved troublesome.

There are so many different markets under the Asian banner - and not all the partnerships that ANZ has entered into have been retained.

There is also plenty of competition in these markets from other banks around the world looking for a foothold in what is undoubtedly a growth market.

In the Asia-versus-Australia investment debate the verdict can only be reached if one makes assumptions about whether the capital could have been better spent to add to market share locally.

The mature Australian market has managed to retain its oligopoly despite an open banking system.

"However, despite leading major bank peers in relation to direct exposure to faster growing Asian banking markets, returns have lagged [behind] domestic-focused CBA and Westpac in particular, with National Australia Bank's return metrics adversely impacted by an underperforming UK franchise," Manning said.

He believes it is time Smith started to rationalise some of ANZ's Asian bank investments.

Smith appears to be making more palatable noises about the heavy Asian investment phase being behind ANZ and potentially more resources diverted into the domestic market.

These will be the questions asked when the bank's result is released on Tuesday.