ANZ’s sale of its retail and wealth management businesses in Asia to DBS is a rare example of a win-win deal.
Firstly, the ANZ side. As we reported in our October cover story, CEO Shayne Elliott wants to pare Asia back to what he thinks the bank is good at: institutional business — specifically trade, debt capital markets, corporate foreign exchange and cash management. The problem is, ANZ has a lot more than that, ranging from unwanted stakes in a range of Asian institutions to an emerging corporate business that doesn’t fit the bank’s approach to asset deployment or risk management.
Within that range of surplus businesses, retail and wealth management is one of the better ones. It brings revenues of S$825 million, S$17 billion of deposits and an S$11 billion loan book. It is a large chunk of the acquisition ANZ made from RBS in 2010 (though there were institutional businesses within that sale too), and it is largely a mass-affluent business across Singapore, Hong Kong, Taiwan and Indonesia, plus a little in China. It is profitable and decent but clearly not core to what ANZ wants to do with its capital.
Next, the DBS side. The acquisition is not transformative but it is more than helpful. Only last week DBS proudly announced it had become one of the top five wealth managers in Asia, with S$159 billion under management. This acquisition adds another S$23 billion to the pile, cementing its position at the top table of Asia Pacific private wealth management and helping with CEO Piyush Gupta’s ever-growing target for the contribution of this business to the overall bank (first ‘double digits’, quickly achieved, then 15%, just about achieved now, and now the new target of 20% of group earnings).
A closer look shows that it is chiefly a mass-affluent rather than a private banking business; high net worth individuals account for S$6 billion of the S$23 billion, or 3,500 out of a total of 100,000 customers, but Gupta believes the mass-affluent rump represents a useful starting point for clients who might graduate to higher levels of wealth. Also, it represents a 25% increase in the bank’s AUM in North Asia. “It moves the needle a lot more meaningfully in the Hong Kong book,” Gupta says.
On the retail side, DBS is painting the acquisition as a great assistance to its digital strategy. It increases DBS’s customer base in Indonesia six times over, from 85,000 to about half a million; in Taiwan, it increases it two and a half times, from 340,000 to 870,000. Since both these businesses include card operations, Gupta sees them as fertile for the bank’s digital ambitions.
Whereas the closely-watched Digibank approach in India – hardly any staff and an entirely digital bank – is very interesting, Gupta says that he has learned from it that there is still a cost to customer acquisition before you put them in to the digital platform. “Although we are finding digital allows us a much lower cost of customer acquisition, there is a cost of customer acquisition,” he says. Buying a million or so customers, he says, means that acquisition cost is already met. “So a million customers we don’t need to acquire: that’s helpful.”
Such are the terms of the deal – far more deposits than loans, limited additional cost – it should have minimal impact on capital ratios while bolstering liquidity at exactly the time that DBS needs it, as credit quality, particularly in relation to Singapore’s oil and gas services sector, comes under increasing pressure. Gupta says the transaction will be completed over 15 months, starting with Singapore; that it should add S$200 million to group income in 2017 and S$600 million in 2018; and that it should add projected earnings of S$200 million within three years with a return on equity of 15%.
Too good to be true? It’s a good deal, but not without its challenges. One is that most of these staff and customers will have gone from ABN Amro to RBS, from RBS to ANZ, and now from ANZ to DBS, in just a few years. It is surely difficult to energize staff to understand yet another group mindset, and customer loyalty must be becoming stressed.
The business has also already lost some key people as ANZ has restructured. Debra Tay, market head of Singapore, Malaysia and international clients in ANZ’s private banking department, departed with her team not long after the bank announced it would combine the private bank and global wealth division in Asia. She’s gone to a bigger and better platform at Credit Suisse.
“The businesses have moved on quite a bit since that acquisition,” says David Hisco, ANZ group executive for Asia retail and wealth. “Yes, there is a core group of customers but we’ve taken the business a long way from where it was when we purchased it. Customers and staff have been very happy with what we’ve been doing.”
|(L-R) Pearlyn Phau, Deputy Group Head, Consumer Banking & |
Wealth Management, DBS; Tan Su Shan, Group Head, Consumer
Banking & Wealth Management, DBS; Piyush Gupta, CEO, DBS;
David Hisco, ANZ Group Executive Asia Retail and Wealth; and
Sanjoy Sen, Managing Director, Retail Banking, Asia Pacific, ANZ
Tan Su Shan, group head of consumer banking and wealth management, says on that deal they expected 30% attrition in terms of AUM, and ended with far less. That said, SG’s clients hadn’t already found themselves changing hands twice already beforehand.
Also, if you wanted to pick the most competitive market in Asia to try to run a sustainable retail banking operation, you wouldn’t go far past Taiwan. “Yes, Taiwan is an overbanked market and very competitive,” says Gupta. “But if you can build up scale it’s not a bad market. If we can start scaling up, we will improve, start outperforming, and returning our cost of capital.”
From ANZ’s side, it didn’t manage to shift everything it wanted to. Hisco says that there were also some small wealth businesses in Cambodia, Vietnam, Japan and the Philippines, amounting to just 300 staff; that will have to be dealt with as it no longer fits the rest of the business in Asia.
It’s happened pretty quickly: Hisco says DBS was the first choice to buy the assets and that they spoke to nobody else (which might interest OCBC’s Bank of Singapore). The period from first call to announcement was just a few months. Deals that make sense are invariably smoother than those that don’t.