AUSTRALIA and New Zealand Banking Group’s (ANZ) CEO Shayne Elliott recently said the group will be looking to sell its minority stakes in AMMB Holdings Bhd and in three other Asian banks over the next 12 to 18 months.

While it has long been known within banking circles — and extensively reported in the press — that ANZ was keen to sell its 23.78% stake in AMMB, this is the first time the Melbourne-based bank has actually confirmed its interest to sell.

Elliott’s comments come after ANZ announced on Oct 31 that it was selling its retail banking and wealth management units in five Asian countries — Singapore, Hong Kong, China, Taiwan and Indonesia — to Singapore’s DBS Group.

ANZ, which recently released its financial results for the full year ended Sept 30 (FY2016), had a carrying value of A$1.2 billion, or about RM3.9 billion, on the AMMB stake. This is after it made a massive impairment charge of A$260 million for the local lender in 1HFY2016.

The carrying value of RM3.9 billion translates into a price to book value (P/BV) of 1.06 times, which is much lower than that at its point of entry.

“It is indicative of a possible floor to the selling price of the AMMB stake. However, it should be noted that the market is pricing it lower, currently at a P/BV of just about 0.8 times, essentially reflecting AMMB’s weak return on equity (ROE) of under 10%” says a banking analyst. AMMB’s ROE stood at 8.5% as at its first quarter ended June 30.

“When you talk about valuations, it cannot be taken on a price-to-book basis alone. It has to be looked at in conjunction with the kind of ROE the bank is generating. The reason the market is pricing AMMB lower is essentially because ROE is at a weak 8.5%,” the analyst says.

The market value of ANZ’s shares in AMMB is much lower, at RM2.91 billion, based on the local lender’s closing share price of RM4.06 last Wednesday.

When ANZ first bought into AMMB in 2006, it paid an average of RM3.63 a share for the stake over two tranches, or RM2.58 billion in total. This worked out to a P/BV of 1.96 times, which was in line with mergers and acquisitions norms of about 1.9 times for Malaysian banks at the time.

Back in 2006, AMMB’s ROE was also around 8%. “I think one of the reasons ANZ was willing to pay so high for the stake, even though the ROE was pretty low back then, is because of the potential and the fact that it would have board seats and the right to run the bank,” the analyst adds.

After ANZ took up the stake, AMMB’s ROE started to climb, hitting a peak of 14% in FY2014, before coming down again amid a tougher operating environment.

With its 23.78% stake, ANZ is the single largest shareholder in AMMB. Investors are closely watching who it will eventually sell the strategic block to, given that it could trigger a possible merger with other banking groups.

In May, The Edge had reported that at least three private equity firms, including TPG Capital, had expressed interest in acquiring ANZ’s stake. The parties talked to Tan Sri Azman Hashim, AMMB’s chairman and major shareholder, about the matter. He has a big say in who takes up the ANZ stake as he has the first right of refusal on it. Azman is the second largest shareholder, with 12.97% equity interest in AMMB, held through AmCorp Group Bhd.

However, it is understood that the firms have made no progress on the matter. “There’s basically been no progress. ANZ is slow ... I think they have been preoccupied with the sale of (some of) their business to DBS,” a source tells The Edge.

Elliott told reporters earlier this month that ANZ’s minority stakes in AMMB, Shanghai Rural Commercial Bank and Bank of Tianjin Co in China, as well as PT Bank Pan Indonesia in Indonesia are all “under review”.

“We have a range of minority investments in banks across the region here in Asia ... they are no longer core to our strategy and we will be looking to sell those over the next 12 to 18 months,” he told Bloomberg TV in an interview.

ANZ did not reveal its price tag for the asset sale  to DBS, but said the price represented an estimated premium to net tangible assets of  S$110 million.

ANZ’s move to sell some of its Asian operations is part of a wider group restructuring. Elliott insists that the group is not exiting Asia — it merely wants to exit the retail and wealth management businesses there, but will continue to run its more profitable institutional businesses.

AMMB’s relatively small earnings contribution to the ANZ group and Basel III’s punitive capital requirements and deductions on minority shareholdings are factors underpinning ANZ’s plan to sell its minority stakes.

“It’s a capital issue. Its holdings in Asia are all equity stakes. And for equity stakes, you have to deduct investments in associates from your CET-1 ratio when you do the calculation. So, it becomes punitive on capital. Hence, selling the stakes actually frees up some capital. “Secondly, the increasingly difficult operating environment, not just in Malaysia but also around the region, makes it more costly and less efficient for ANZ to maintain such overseas operations,” the analyst says.

It is a matter of pricing that will ultimately determine the AMMB stake sale, analysts say.

“We can’t just simply go out and run an auction and see who turns up. We have to negotiate with governments, regulators and our partners. That is why it is complicated, it is not to do with our price ambitions,” Elliott said of the minority  stakes.  

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