Analysts have backed ANZ Banking Group's decision to cut its retail and wealth footprint in Asia, saying it is a small but positive step for the bank's new management team.
ANZ announced on Monday it had sold its retail and wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to DBS Bank, which is based in Singapore.
Analysts said the following in notes to clients on Tuesday morning:
Credit Suisse: Don't forget execution risks
"On the positive side, ANZ is building execution credentials in relation to its business divestment program (much remains to be done here, including the Asian partnership investments, Australian wealth, ANZ Share Investing, and the residual Asian retail & wealth businesses).
"On the negative side, ANZ faces an issue of dealing with "stranded" indirect costs associated with this business (say $330mn) highlighting the immediate execution risks that we see in relation to the ANZ business & cost restructuring story (and for a stock where we see multiples priced for apparent perfect execution, some years ahead of delivery).
"Whilst we see an attractive three-year cost and business restructuring story within ANZ, our more cautious one-year view has been predicated on the challenges of execution, namely funding sizable additional restructuring provisions in a regulatory capital constrained environment, revenue attrition risks arising from Asia / institutional exposure rationalisation (RWA reduction) and the prospect for additional bad debt charges to be crystallised as ANZ progressively exits its emerging Asian corporate exposures."
Deutsche Bank: Strong sale price
"From ANZ's perspective, we estimate that post separation and other costs, the sale price equates to ~0.94x tangible book value.
"We view this to be a strong sale price given we estimate an implied ROTE of just over 6%. Clearly the assets also lack strategic value to ANZ; ANZ has no competitive advantage in Asian retail banking. It also appears to have found a buyer that does have competitive advantage – evidenced by DBS Bank's disclosure today that the acquisition is expected to deliver at least a 15% ROE within 3 years."
Macquarie: Improved returns and greater focus on core business
"While today's announcement marked another downgrade to ANZ's earnings and write-down to its book value, we see it as a small but incrementally positive strategic step.
"Optimisation of its sub-scale businesses in Asia should ultimately lead to improved returns and greater focus on the core franchise.
"While the transaction is not large (we estimate a negative EPS impact of 1-2% in FY18-19), it demonstrates management's focus on balance sheet optimisation and simplification."
Morgan Stanley: Another small step in the "ANZ Solution"
"CEO Shayne Elliott has acted decisively to implement an 'ANZ Solution'. In our view, the Asian retail banking operations were non-core, and it makes strategic sense for ANZ to sell them.
"We estimate that the combined impact of the gain on sale, write-down and exit costs equates to 4-5% of one year's profit, spread across 2H17 and 1H18 as the deal completes in each country.
"However, recurring earnings are likely to be reduced by ~1%, as we estimate that the steady-state profit of these businesses is
