Things could get interesting should sale of AMMB stakes go through

With ANZ set to part with its investment in AMMB, the bank’s founder and chairman Tan Sri Azman Hashim too appears ready to let go of his interest in the bank. Azman indirectly owns 16% of the banking group.

THE banking landscape could very well change should shareholding changes in AMMB Holdings Bhd materialise.

The Australia and New Zealand Banking Group Ltd (ANZ) has seemingly put its 24% block of shares up for sale for months with little interest from local banks to gobble up that block.

With ANZ set to part with its investment in AMMB, the bank’s founder and chairman Tan Sri Azman Hashim too appears ready to let go of his interest in the bank.

Azman Hashim indirectly owns 16% of the banking group.

While ANZ-appointed Credit Suisse has been scouting for a new buyer, analysts think a stake sale might not be as straight forward as ANZ would like it to be.

“Apart from Malayan Banking Bhd (Maybank), there will be little interest from other potential suitors,” says an analyst who covers the sector.

One reason for the lukewarm interest in buying AMMB is valuation. Analysts say the stock is not cheap and growth has been slow in some segments the bank is in.

It, though, boasts better margins than most Malaysian banks and its return on equity has been more than decent when compared against its Malaysian peers.

“The other thing going for AMMB is that ANZ’s presence has strengthened the bank’s shareholding and improved its financial position.”

That all can change, though, should the mood in the banking system changes.

“If Bank Negara wants mergers to go ahead, then something can happen,” says an analyst.

Reason for sale

ANZ has been under some pressure in the past from investors back home to sell its assets in Asia bought years ago.

It recently sold its stake in Saigon Securities in Vietnam and reports indicate the sale process will not stop there. It is reported that Goldman Sachs has appointed to look at options for its stake in Panin Bank in Indonesia.

AMMB though is arguably ANZ’s prized asset in its Asian portfolio. Should it sell its stake, ANZ would realise a windfall.

ANZ paid on average RM3.63, or RM2.6bil, to buy its 716.8 million shares in AMMB. Those shares are valued closed to RM5bil today but the carrying value on its books is RM3.66bil.

One reason why groups of shareholders want ANZ to exit from Asia is because of returns. ANZ is generating a return on equity of 15.5% whereas AMMB, one of its better assets, is returning a ROE of 14.1%.

Another reason why a stake sale is being sought is because of Basel III requirements. Since AMMB is an associate company in ANZ, that stake in AMMB will be punitive for ANZ as it will need to have set aside more cash to account for its shareholding in AMMB.

“We can understand why the need to sell from the Basel III perspective. Minorioty stakes are punitive for banks under the new rules,” says an analyst.

In Azman’s case, the desire to exit stems from the fact he does not run the bank anymore.

None of his children have an active role in the bank and the nature of banking has changed from the time he started AMMB.

A seasoned banker, Azman has said many times that a bank has to lend to make money.

Although Ambank still seeing some growth in loans, it is no longer a strong player in any one of the main segments of banking where its past strengths were.

AMMB made its chops in the banking scene as a corporate bank.

The wholesale business and investment banking were the mainstays of the bank but the larger banks have leapfrogged AMMB in that aspect. Today, Maybank and CIMB Group Holdings Bhd dominate the investment banking scene.

Another reason for agreeing to depart AMMB stems from the competitive landscape of the industry.

With commercial banking now driving much of the other aspects of the financial industry, it is the one segment that AMMB is lagging behind when compared with the other giants. “That has never been their strongest suit but unfortunately for them, that is now the key aspect of banking in Malaysia,” says an analyst.

AMMB used to be the biggest auto loan provider in the country but that is no longer the case.

“The profile of the bank has changed very much from the time he founded it,” says an observer.

Changing dynamics

After pouring in big money to recapitalise the banking group and to take up a controlling stake in AMMB, ANZ has turned things around for AMMB.

The turnaround of AMMB’s fortunes from pre-Global financial crisis when ANZ first entered in 2007 to now has been startling.

ROEs have been higher after the entry of ANZ and the bank’s earnings per share too has been climbing.

The focus on insurance business has lifted non-interest income and has seen the insurance side of the business climb substantially over the past three years, far eclipsing corporate and commercial banking.

“Under ANZ, AMMB has become big in insurance but it is a safe bet and a long term play,” says an analyst.

While the performance mix and ratios has been alright by industry averages, the bank’s share price has been trending downwards the past one year.

Its size in the middle of the pack among the banks in the country also stymies its competitive position a bit. “It’s not here nor there. It is fairly big but not as big to take on the giants of the industry,” says an observer.

Should the sale of the stakes by ANZ and Azman go through, analysts say that will put pressure on the other smaller banks, namely Affin Bank Bhd and Alliance Financial Group.

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