The Distillery: ANZ's Asian distinction

Australia’s business commentators had much to reflect on going into the weekend. ANZ Bank’s latest set of numbers made for interesting reading as chief executive Mike Smith continued to sell the Asian growth story. Also, Fortescue Metals Group chairman Andrew Forrest might himself be surprised as his company’s latest deal.

Firstly, The Australian Financial Review’s Andrew Cornell runs through the fine tuning to ANZ Bank’s strategy, especially the company’s Asian growth trajectory and intra-regional activity, which is the ‘alpha’ in its share price.

“Albeit one with a fair bit of ‘delta’. That is, Asia is the extra return ANZ Bank can offer beyond the stable Australia and New Zealand banking universe in which the big four operate but it does have more volatility. At the moment, that volatility is the intense price competition in institutional banking, which represents about 80 per cent of ANZ Bank’s Asia business. Hence, after Friday’s trading update by ANZ Bank, Goldman Sachs noted: ‘We continue to view ANZ Bank’s medium-term Asian strategy positively. However, our chief near-term concern for the group remains the ongoing margin headwind from its Asian operations (partly from competition, partly from the impact of lower rates and partly from shifting mix) and today’s update suggests to us that this headwind is likely to continue for at least the remainder of fiscal 2013’.”

Business Spectator’s Stephen Bartholomeusz notes that ANZ Bank, like all the banks, realised last year that credit growth wasn’t on and thus focussed on productivity.

“The results of those programs, which included significant job-shedding, are showing up increasingly in their results, with the growth rates in their income significantly greater than those of their costs. While the economy might have slowed, some of the majors are still finding growth. Commonwealth Bank grew its interest-earning assets by 4 per cent in the year to June, in line with the growth of its deposit base. ANZ Bank is doing even better, with an 8 per cent increase in its net lending assets more than funded by a 12 per cent increase in deposits.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd writes that Smith believes the China slowdown story has been oversold, with the world’s second largest economy still growing 7-7.5 per cent per year.

“Smith says that is the equivalent of adding an economy the size of Switzerland each year. The positive comments are well founded, considering Smith has banking operations in Hong Kong, China, Vietnam, Taiwan, Indonesia, Malaysia, Singapore and Japan. Similar bullish comments about China have been emanating from Australia’s big iron ore miners, including Rio Tinto and Fortescue Metals Group. Further endorsement of China’s long-term growth prospects are expected from BHP Billiton chief executive Andrew Mackenzie at the release of full-year profits next week.”

Speaking of Fortescue and the miners, The Australian Financial Review’s Matthew Stevens is utterly staggered at the latest Fortescue deal that secures $US1.15 billion ($1.26 billion) for a 31 per cent stake in FMG Iron Bridge.

“Somehow, Team Fortescue has been able to monetise an asset that very few in the market valued at more than zero and, simultaneously, secure foundation investment and custom for a project that was categorised, most justifiably, as very distant blue sky. Given it all goes to the running sheet Fortescue promoted on Friday, this is a deal that ticks every box imaginable, from the discretely financial to the regionally tectonic and the immediately political.”

Fairfax’s Malcolm Maiden writes that there are “two kickers” to the agreement that make it particularly attractive for Forrest’s Fortescue.

“Firstly, Formosa Plastics has agreed to purchase up to 3 million tonnes of iron ore a year at market prices after the first of up to six blast furnaces at its Vietnam steel mill comes on line in 2015 if the development stays on schedule. Secondly, and very importantly for Fortescue, the Taiwanese group has also agreed to pay Fortescue $500 million upfront to gain access to Fortescue's iron ore export slots at Port Hedland. The exact value of that deal depends on the fine print. How much export volume Formosa Plastics has locked in at Port Hedland and for how long, in particular.”

Staying with resources, The Australian Financial Review’s Angela Macdonald-Smith says the comments from Australia’s largest foreign investor, Chevron, about the cost of doing business Down Under during an election campaign indicates just how much pressure the LNG industry is under. Asian buyers are increasingly looking towards cheaper potential suppliers in the US, Canada, Russia and east Africa.

In politics, Fairfax’s Ross Gittins argues that Opposition Treasurer Joe Hockey has many good reasons to decline to set a date for the budget’s return to surplus under a Coalition government. What he doesn’t have the right to do, writes Gittins, is trash Treasury.

Speaking of trashings, Fairfax’s Michael West dishes it out to Prime Minister Kevin Rudd for his Northern Territory tax policy proposal.

The Australian’s economics editor David Uren looks at the unfathomable levels of business bank deposits against low interest rates. He argues that they reflect the extent to which the Reserve Bank’s rate cuts have done bugger all to improve business sentiment.

And finally, The Australian’s John Durie says the line from business leaders that they just want a decisive outcome in the upcoming federal election is “nonsense”. No, they want Labor gone, gone, gone.