ANZ Australia And New Zealand Banking Group Limited

Australia and New Zealand Banking Group Ltd. (ANZ) could get an instant boost to its footprint in Asia by buying Royal Bank of Scotland's Asian operations, which could represent an attractive and low cost option for growth, Macquarie Research analysts said Tuesday.

Melbourne-based ANZ has made no secret of its ambitions to expand in Asia, where it aims to become a "super-regional" lender, and while an ANZ spokeswoman declined to comment on speculation it could bid for RBS Asian operations, she said it will assess strategic opportunities as they arise.

RBS has hired Morgan Stanley to advise it on the potential sale of its retail and commercial banking businesses in Asia, which operate in eight countries around the region, including the key markets of India, China and Hong Kong. The businesses could fetch up to A$2.5 billion, Macquarie estimates.

ANZ has hired Credit Suisse to advise it on options according to local media reports, and most analysts expect it will take a close look at RBS' information memorandum, which was sent out to potential buyers late last week, according to people familiar with the situation.

ANZ - Australia's fourth largest bank - aims to become one of the four biggest players in both India and China in coming years, and Chief Executive Mike Smith wants to generate 20% of the bank's earnings from the region by 2012.

Smith, a veteran banker in Asia who joined ANZ from HSBC in 2007, said last month that the gyrations in global banking sector hadn't deterred the Australian lender's ambitions.

It's an ambitious - and some say high risk - strategy, but one that differentiates ANZ from its Australian rivals, who have refocussed their attention on the domestic market.

"We view ANZ's likely interest in the RBS Asian assets as positive for shareholders as the deal would represent a low-cost expansion of ANZ's existing Asian business, with positive balance sheet implications," Macquarie said.

While ill-timed acquisitions have been behind the fall of some of the world's biggest banks, including RBS, Macquarie believes the assets up for grabs are well funded from a capital and liquidity perspective, thanks in part to a strong deposit franchise. That could help boost both ANZ's capital and funding positions - a big selling point in this environment.

And while interest in the RBS Asian operations is likely to be keen, with talk that multinationals HSBC and Standard and Chartered are interested along with some of the Chinese banks, Macquarie sees a better fit and stronger strategic imperative for ANZ than most likely rival bidders.

"The geographic mix of business shows very little overlap with ANZ's existing operations, and in fact is probably complementary to ANZ's wholesale banking operations in Asia," Macquarie said.

"This stacks up well relative to other potential bidders - namely Standard Chartered - where we believe there is far greater overlap between the businesses," Macquarie said.

The assets for sale generated around GBP781 million of income during the 2008 financial year, a 12.4% improvement on the prior year, according to Macquarie's estimates.

ANZ would probably have to sell shares to investors to raise cash to buy any assets. Macquarie expects a share placement would have to be at a 10% discount to market price, which would mean further dilution for shareholders. But it's worth noting a deal has been expected for some time, and taking RBS assets would remove that overhang from ANZ's share price, Macquarie's analysts said.

RBS hasn't indicated a timeframe for any divestments, and Macquarie isn't expecting any major developments in the near term.

"Details of a potential deal are not likely to emerge for some time given the sale process has only recently begun and documentation is likely to be hot off the press," Macquarie said.

It's also worth noting that Smith has stressed he's not in a hurry to do any deals and he won't be overpaying for growth.

 
   -By Lyndal McFarland, Dow Jones Newswires; 61-3-9292-2093; lyndal.mcfarland@dowjones.com 
 

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