KEB a good get for ANZ

Korea Exchange Bank has to be a tempting option for ANZ - so tempting the board might as well go ahead and buy it.

The central principle of building a wider and deeper banking business in Asia, or anywhere, is to buy among what's for sale - or at least the most attractive parts of it. This rationale is all the clearer when the sequence of buying opportunities emerges in the context of an especially destructive global recession.

KEB is an attractive, controlling interest in the third largest banking franchise in South Korea, and with prospects of becoming a central force in one of two dominant banks in what remains a productive and progressive economy.

In South Korea ANZ really has to be a buyer if the bank's Asian strategy is to mean anything.

The opportunity for ANZ is that there seems not to be much competition for the stake that Lone Star, a US private equity fund has for sale. If anything this is the key factor keeping ANZ in the race and helping to ensure that its prospects of a well-priced purchase of KEB are not at all bad.

The present market capitalisation of KEB is US$6.6 billion. Lone Star is selling a stake of 51 per cent. A stake of six per cent held by Korean Export and Import Bank is also for sale. The combined stake of 57.27 per cent will cost ANZ US$3.8 billion if the current share price provides any guide on value.

The Department of Foreign Affairs and Trade puts two-way trade between Australia and South Korea at $22 billion. Trade in services is $2 billion.

Foreign direct investment is less than $1 billion in either direction. There is another $14 billion in portfolios, with the direction split fifty-fifty.

Australian producers accounted for 4.6 per cent of South Korean imports in 2009, ranked fifth.

Australian importers accounted for 1.4 per cent of Korean exports, ranked fourteenth.

These statistics highlight that however valuable are the Australian-Korean banking business flows that ANZ can chase, there's only a small number of very valuable accounts to pursue.

Thus, for ANZ, Korea Exchange Bank is essentially a play on a domestic banking opportunity.

No doubt there will be much wailing by some owners of shares about any decision by ANZ to go ahead and buy into KEB.

For ANZ's critics, this will probably be too much whatever the bank pays.