No great profits for ANZ from RBS Asia

With no other serious rivals in the end ANZ negotiated what is only just a fair price to buy most of the banking businesses (but not licences) of Royal Bank of Scotland in six markets in Asia. ANZ and RBS announced the terms of the transaction yesterday.

The price is said, by ANZ, to be US$550 million, and said, again by ANZ, to be a premium of US$50 million to the "fully provided, recapitalised, net tangible book value", and equal to 1.1 times net assets.

On the other hand RBS said they were selling the business to ANZ for US$418 million. RBS agreed with ANZ that the premium to book value was US$50 million.

The difference of US$132 million may represent the recapitalisation by ANZ of these banks and perhaps restructuring provisions.

Since ANZ does not expect the acquisition to increase earnings per share until the third year it's hard to regard the price as cheap, even if the premium to net assets is low.

For its effort ANZ will take control of US$7 billion in deposits, US$3 billion in loans, two million customers and 54 branches at former ABN Amro banking operations across six countries; in rough order of size, Taiwan, Indonesia, Singapore, Hong Kong, Philippines and Vietnam.

ANZ is buying retail and commercial businesses in the larger markets and institutional businesses in the smaller markets (but with institutional as well in Taiwan).

Of the loans US$1.7 billion are retail, US$580 million are commercial and US$1.1 billion are institutional.

The RBS portfolio is significantly less profitable than ANZ's existing businesses in Asia.

The acquired assets produced a pro forma, pre-tax, pre-provision profit of US$88 million, equal to a return of 1.6 per cent on risk-weighted assets and a return of 2.7 per cent on net loans (and a proxy for assets).

In ANZ's existing Asian business the return on risk-weighted assets is 2.5 per cent and the return on assets is 4.4 per cent, using data published yesterday by the company.