Australia & New Zealand Banking Group Ltd. (ANZ) Chief Executive Officer Michael Smith said takeover targets in Hong Kong are expensive, as the lender considers plans to expand its Asia-Pacific businesses.
“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,” Smith said in an interview with Bloomberg Television’s Susan Li today. “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.”
Smith, who heads Australia’s most Asia-focused lender, is trying to double the contribution from his bank’s businesses outside Australia and New Zealand to as much as 30 percent of profit by 2017. He said the bank, which set up a locally incorporated unit in China in 2011 and has expanded its branches in Indonesia, is hoping to get its banking license in Thailand next year.
Speaking in Hong Kong, Smith declined to say whether ANZ is bidding for Wing Hang Bank Ltd. (302) and Chong Hing (1111) Bank Ltd., two of the city’s four family-owned lenders.
His bank was among firms interested in acquiring Wing Hang, Reuters and the Wall Street Journal said last month. The Melbourne-based lender was among five bidders for Chong Hing, Oriental Daily reported Sept. 16.
Wing Hang shares trade for 1.7 times the value of the lender’s assets after a 43 percent rally this year, according to data compiled by Bloomberg. The lender may fetch as much as three times book, according to Mizuho Financial Group Inc. (8411) and BNP Paribas SA estimates. Chong Hing is valued at 2 times book value after its shares doubled this year.
“Two times book is ridiculous at these times,” said Smith, who became ANZ’s CEO in October 2007. “I am always looking at various opportunities but right now I think it is all too expensive.”
Industrial and Commercial Bank of China Ltd., the world’s largest by market value, is valued at 1.3 times book, data compiled by Bloomberg show. London-based HSBC Holdings Plc (5), which got 35 percent of its second-quarter revenue in the Asia-Pacific region, trades for 1.2 times.
Wing Hang’s stock gained 1.5 percent to HK$116 as of 2:08 p.m Hong Kong time. Chong Hing added 0.9 percent to HK$33.55. ANZ closed 0.1 percent lower at A$30.44 in Sydney.
Smith’s comments reinforce “that if he’s going to make an acquisition, he’s going to be disciplined,” Paul Xiradis, CEO of Sydney-based Ausbil Dexia Ltd., which manages about $9 billion in assets including ANZ shares. “For just about any bank being sold in Asia, ANZ’s name is beside it but they haven’t bought any in recent times.”
Prior to ANZ Bank, Smith was CEO of HSBC’s Asian operations based in Hong Kong. His 29-year career at HSBC included postings in the U.K., Australia, the Middle East and Argentina, according to a profile supplied by ANZ Bank.
Smith said in May 2008 paying more than three times book for Hong Kong’s Wing Lung Bank Ltd. would be “crazy.” The following day, China Merchants Bank Co. beat ANZ in bidding for Wing Lung in a transaction that valued the lender at the same level.
Wing Hang has 15 mainland outlets, mostly located in the southern part of China including Shenzhen and Guangzhou as its business focuses on the Pearl River Delta, according to the lender’s website. Chong Hing, the smallest family-run bank in Hong Kong, has three outlets on the mainland located in Guangzhou, Shanghai and Shantou, respectively.
HSBC, the largest foreign lender in China by number of branches, had 150 outlets on the mainland, followed by Bank of East Asia Ltd.’s more than 120 outlets.
“The strategic value of Hong Kong is access to renminbi,” Smith said, referring to China’s currency. “I don’t care if it’s offshore, international or if it’s fully convertible. You’ve got to build your base in renminbi capability.”
Smith’s largest transaction since becoming ANZ’s CEO was the $550 million purchase of Royal Bank of Scotland Group Plc’s businesses in Singapore, Taiwan, Indonesia, Hong Kong, the Philippines and Vietnam in 2009, according to data compiled by Bloomberg. Under his leadership, the number of ANZ’s Asia-Pacific customers grew to 2.6 million as of Dec. 31 from 925,000 five years earlier, according to a company filing.
ANZ can afford to wait for transactions at the “right price” as it has been successful in expanding its own business in the Asia-Pacific region, Ausbil Dexia’s Xiradis said.
The lender hopes to obtain permission to offer banking next year in Thailand, where a new set of licenses is due to to be issued, Smith said. The nation is the only major Asian market where ANZ doesn’t have a presence.
Total bank loans grew 12.8 percent in the second quarter from a year earlier in Southeast Asia’s second-largest economy, compared with 13.2 percent in the previous three months, according to Bank of Thailand data. Australian mortgages expanded an average 4.5 percent in the three months to June, while business lending gained 1.1 percent, Reserve Bank of Australia data show.
Thai authorities “have outlined the guidelines they require and we’ve made our application,” Smith said. “Hopefully we’ll close that gap.”
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