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Published 04 February 2013 11:24, Updated 05 February 2013 06:45
Making a move ... it is believed Westpac has been quietly looking at investment opportunities in Asia over the past year. Photo: Glenn Hunt
Westpac Banking Corp made a surprise bid for a $400 million stake in Hong Kong’s Bank of East Asia in December, in a clear sign that Australia’s second-largest bank is more serious about growing in Asia.
It is believed Westpac was the underbidder for a 5 per cent stake in Bank of East Asia in early December but was ultimately beaten by a higher, $US426 million offer from one of Japan’s largest financial institutions, Sumitomo Mitsui. Westpac chief executive Gail Kelly was seeking to gain a strategic, long-term shareholding in the business, market sources familiar with the transaction said.
The attempt to buy into an Asian bank is noteworthy, because under Mrs Kelly and former CEO David Morgan, Westpac has been the most domestically focused of the big four banks, deriving the vast majority of its $6.6 billion profit from Australia and New Zealand.
It is believed Westpac has been quietly looking at investment opportunities in Asia over the past year, including small-scale acquisitions in banking and wealth management.
It is understood Westpac’s interest in Bank of East Asia was more than a passive shareholding and a way to gain insight into the Asian banking market over the long term. There was no plan to take over the family-run bank. A Westpac spokesman declined to comment on Bank of East Asia.
“Our primary focus in Asia is around organic expansion to support our customers in Asia,” he said.
Domestic growth for Australia’s big banks is likely to be constrained in the future, due to subdued demand for loans, the four pillars policy and the competition regulator’s reluctance to allow the swallowing up of smaller rivals.
Asia is home to the world’s fastest- growing economies, has a rising middle class, large savings pools and is Australia’s biggest trading partner, making it an appealing market for our banks. The federal government’s Australia in the Asian Century white paper states that the region is creating new opportunities for banking and financial services.
After spending much of her first five years at Westpac bedding down the $12.2 billion acquisition of St George Bank in 2008 and focusing on IT systems, Mrs Kelly is now increasingly occupying herself with broader strategic priorities for the bank, including the opportunities presented by Asia.
This has been aided by a management restructure in November 2011 and the arrival of senior recruit Brian Hartzer in August 2012, which reduced the number of senior executives directly reporting to Mrs Kelly from 12 to seven.
Last July, Westpac chairman Lindsay Maxsted, Mrs Kelly and institutional boss Rob Whitfield, who is in charge of the bank’s Asia strategy, visited Hong Kong, Singapore and Indonesia to meet government officials, regulators, customers and staff. But sources close to the bank believe any large-scale acquisition in Asia is unlikely under Mrs Kelly’s watch and will be more seriously considered when there is a change of chief executive in about two years.
Bank of East Asia issued 111 million new shares in December for $HK3.3 billion ($400 million) to fund it expansion plans in mainland China and bolster its capital.
Sumitomo Mitsui paid $HK29.59 per share, allowing it to double its existing stake in Bank of East Asia to 9.5 per cent. Japan’s biggest banks are looking to expand offshore to offset the weak domestic economy and soft loan demand.
Bank of East Asia’s other major shareholders include Spain’s CaixaBank SA and the investment company Guoco Group controlled by Malaysian billionaire Quek Leng Chan. The Li family, including Bank of East Asia chief David Li and his sons who hold senior roles at the bank, also own more than 7 per cent of the bank.
Westpac derived most of its $6.6 billion cash profit last year from Australia and New Zealand and has operations in five Asian countries, compared to 14 for ANZ Banking Group, Commonwealth Bank of Australia’s seven and National Australia Bank’s six.
Westpac’s foray into Asia will be more measured than ANZ’s, which has a stated goal of earning between 25 and 30 per cent of group profits outside of Australia and New Zealand by 2017.
Commonwealth Bank is most active in Indonesia where it has 86 branches, plus wealth and insurance arms, which delivered after-tax profit of $79 million last year.
Westpac will this month open a branch in India, joining ANZ, Commonwealth Bank and NAB, who already have a presence there.
Westpac last year hired Indian-born former Bank of America Merrill Lynch banker Balaji Swaminathan as its general manager of Asia. Based in Singapore, he was previously managing director and head of origination for southern Asia and south-east Asia at Standard Chartered.
This story first appeared on The Australian Financial Review.