Hong Kong attractive, but too 'overpriced'
"I have always been interested in assets in this part of the world and Hong Kong obviously is an attractive market, but I feel they are overpriced," he said. "I look at Hong Kong as very much a stepping stone into China. Therefore, anything you look for has to have the strategic next step in terms of your expansion into the Chinese mainland."
The ANZ boss is trying to double the contribution from his bank's businesses outside Australia and New Zealand to as much as 30 per cent of profit by 2017. His largest transaction since becoming chief executive in 2007 was the $550 million purchase of Royal Bank of Scotland's businesses in Singapore, Taiwan, Indonesia, Hong Kong, the Philippines and Vietnam in 2009.
His bank was among firms interested in acquiring Hong Kong's Wing Hang Bank, it was reported last month. It was also among five bidders for Chong Hing Bank, the Oriental Daily News reported.
Speaking in Hong Kong, Mr Smith declined to confirm bids for the two banks. Wing Hang trades for 1.7 times its corporate net worth and Chong Hing is valued at 1.9 times book value, according to data compiled by Bloomberg.
Wing Hang, the more profitable lender of the two, may fetch as much as three times book, according to analyst estimates.
"I am always looking at various opportunities but right now I think it is all too expensive," Mr Smith said. "Two times book is ridiculous at these times. Expectations of owners are not very realistic."
Mr Smith said in 2008 that paying more than three times book for Wing Lung Bank would be "crazy". The next day, China Merchants Bank beat ANZ in bidding for Wing Lung in a transaction that valued the lender at the same level.
ANZ expects to obtain a banking licence next year in Thailand, the only major Asian market where it doesn't have a presence.
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ANZ chief executive Mike Smith said Hong Kong is an attractive market and a useful stepping stone into China, but many potential targets are trading at high price-to-book multiples. He has described current prices as “overpriced,” saying two times book value is “ridiculous” and owner expectations aren’t realistic, which makes deals less appealing.
The article reports ANZ was among firms interested in Hong Kong’s Wing Hang Bank and was also one of five bidders reported for Chong Hing Bank, though Mr Smith declined to confirm any specific bids.
According to Bloomberg data cited in the article, Wing Hang was trading at about 1.7 times corporate net worth and Chong Hing at about 1.9 times book value. Analysts estimated the more profitable Wing Hang could fetch as much as three times book value.
High price-to-book multiples raise the acquisition cost and make deals less attractive. ANZ’s CEO has said that paying two times book is unreasonable and that excessively high owner expectations reduce the likelihood of pursuing transactions at those prices.
ANZ’s largest deal since its current CEO took charge was the A$550 million 2009 purchase of Royal Bank of Scotland’s businesses across Singapore, Taiwan, Indonesia, Hong Kong, the Philippines and Vietnam — a move that underlines its push to grow outside Australia and New Zealand.
Mr Smith views Hong Kong as a strategic stepping stone into the Chinese mainland. Any acquisition there needs to offer a clear next step toward expansion into China, not just a standalone asset.
ANZ is trying to double the contribution from its businesses outside Australia and New Zealand to as much as 30% of group profit by 2017, according to the article.
Yes. The article notes ANZ expects to obtain a banking licence in Thailand next year, which would be the only major Asian market where it currently does not have a presence.
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