The Distillery: ANZ's Asian edge

A record share price and a record profit had ANZ Bank firmly in the spotlight yesterday. The member of the big four has been roundly criticised for chasing growth in Asia in recent times, but yesterday’s startling result provided at least partial vindication for the move, according to the commentariat. But what does it mean for its largest local rivals?

Elsewhere, the ferocious fight for Warrnambool Cheese and Butter is turned on its head by the intervention of Kirin Holdings, according to one jotter, while a speech from Reserve Bank governor Glenn Stevens has scribes in a frenzy.

On a normal day it would have been the lead story for most business dailies, but yesterday was far from normal.

First to ANZ Bank. The Australian’s John Durie argues the group’s chief executive Mike Smith is onto a good thing in Asia and the patience it is showing will be rewarded, even if analysts can’t see the forest through the trees.

“ANZ has yet to reach critical mass in most of the Asian markets and, pleasingly, Smith is not overpaying for more assets, happy to let organic growth get him there. …The frustrating thing for the ANZ team is that Asia is the right strategy, but it's hard work and takes a long time to really prosper.”

The push against Asian expansion by local analysts has caused tension to bubble, according to The Australian Financial Review’s Matthew Stevens, and he says Smith is in no mood to pander to their whims.

“No question, ANZ’s chief executive understands the impatience in some corners of the market and the need to be held to account for investments that generate rates of return that, so far at least, simply do not cut it with his legacy businesses. But he doesn’t have time for the idea that ANZ’s energies should be redirected...”

Stevens’ colleague, Chanticleer columnist Tony Boyd, also picks up on the friction between Smith and analysts. Still, the ANZ Bank boss may have the last laugh.

“Whatever way you look at it, ANZ’s pursuit of a unique Asian strategy has the potential to deliver strong total shareholder returns if management can deliver what it has promised. It would appear that Smith has done everything in his power to provide the ammunition for a re-rating of the stock.”

Business Spectator’s Stephen Bartholomeusz agrees that the Asian expansion offers plenty of opportunity for ANZ Bank, spotlighting an issue with the argument against the strategy. Still, the latest results will do little to “muzzle the sceptics”.

“The crux of the criticism of Smith’s expansion into Asia has been that the capital would have been better deployed, and would have produced better returns, in its home market. That, of course, pre-supposes that there was an opportunity to deploy that capital in a domestic market where credit growth is modest and acquisition opportunities that would be allowed by the regulators scarce.”

The Herald Sun’s Terry McCrann takes a different tact, looking instead at the local market. If the Commonwealth Bank and ANZ Bank have recently lifted their local market shares, what does that mean for the other players at home?

“How can all four big banks win market share? The Commonwealth Bank, which reported for the June year, had a similarly good growth result to the ANZ. One would presume that at least one of them, surely, has to lose share. So will one of Westpac and National Australia Bank be found to have put on the party, so to speak, for its three big bank fellows? Or will all four have grown at the expense of the regionals?”

The smart money is on the regionals losing out. Fairfax’s Malcolm Maiden concurs, advising investors that a bet against our big banks is fraught with danger.

“ANZ Bank and its big local banking competitors are still in a virtuous circle: earnings and dividend increases are driving share price gains that further boost shareholder returns, and there is no obvious reason why it can't continue.”

Moving to other company news, Warrnambool Cheese and Butter Factory has found another player to deal with in the form of Kirin Holdings, which has acquired a 10 per cent strategic stake.

The Herald Sun’s McCrann contends that the latest player will put pay to the chances of Canada’s Saputo, which had been a heavy favourite until yesterday, while The Australian’s Durie mulls whether Kirin – or New Zealand dairy giant Fonterra – will go as far as to make a takeover bid itself. Or are they just playing the strategic game?

Elsewhere, a speech from the Reserve Bank of Australia’s Glenn Stevens leads the AFR’s economics editor Alan Mitchell to conclude a dollar decline is inevitable.

However, it was Stevens’ careful wade into the debate surrounding treasurer Joe Hockey’s special payout to the Reserve Bank that drew most attention. The Australian’s Adam Creighton suggests it vindicates the treasurer’s decision, while Fairfax’s Michael Pascoe takes the alternative position and Business Spectator’s Bartholomeusz views the comments as fuel for both sides of the debate.

In other words, Stevens has done a pretty good job at staying on the fence while appearing to have jumped off it.

Finally, the AFR’s Karen Maley discusses the potential for change in China, while Fairfax’s Adele Ferguson examines Asahi’s lack of success with its 2011 Independent Liquor purchase.