ANZ shows staying power

David Hornery moved to Singapore in January this year to become ANZ's managing director for Asia. He now oversees 600 people in 11 markets and is chief of a wholesale and retail strategy that encompasses everything from private and personal banking to structured trade finance, leasing and forex trading. FinanceAsia spoke to Hornery about ANZ's wholesale banking strategy for Asia.

How do your retail and wholesale strategies compare and contrast in Asia ?

David Hornery: The two are similar in that we want to grow our business in each of the geographies that we currently cover in a prioritized way. But the strategies differ in the approach. On the retail front we are achieving our growth targets under the ANZ brand but also through a series of current and prospective alliances with and minority stakes in local banks. Some of these include part ownership of Panin Bank in Indonesia, a credit card deal with Metrobank in the Philippines and an alliance with Shanghai Rural Credit Co-operative in China. The wholesale targets are being achieved under the ANZ brand, and in this area we mimic our product capabilities in Australia.

What products underpin the wholesale bank?

Hornery: There are a few obvious strengths and they are trade finance, M&A advisory, structured export and project finance (especially in the infrastructure and power sectors) and foreign exchange. But we are also building on these for example in the capital markets and capital structuring businesses. We're now very active in distributing Kangaroo bonds to Asian investors, for example. We recently did an Australian dollar deal for Morgan Stanley where a lot of the paper was placed with Asian buyers. We are utilizing the same distribution and placement strengths that we have in loan syndication. Our capacity to place good tranches of newly structured paper in the market is very strong.

Do you lead with your product expertise or your industry expertise?

Hornery: We take a combined approach. First we have a very strong product capability that mirrors our successes in Australia. Then we combine our industry expertise and some of these industries include: food, beverage and agriculture; manufacturing, financial institutions, and natural resources.. Then we add our personal relationships and our advisory track record into this mix and we have a powerful offering.

What is the key to making Asia a success?

Hornery: You have to have an obvious competitive advantage and staying power. If you don't have an edge of some description then you won't succeed in the long term. It takes a clear strategy and good people to implement that strategy.

Why has it been difficult for most Australian banks to gain a successful foothold in Asia ?

Hornery: I don't want to comment on the strategies of other commercial banks. All I will say is that you have to have a breadth of organizational commitment to the region. We have been in Japan since 1969, in Hong Kong since 1972, and we're the largest foreign bank in Vietnam where we opened our offices in 1993. We understand that Asia goes through cycles and we plan for those in the way we build the foundations of the business, particularly in the drive for product and fee based revenues over the net interest income line. You just can't build an enduring business in Asia if you take a transitory approach to the region.

Who would you pinpoint as your main competitors?

Hornery: Our competitors are the global banks such as HSBC, Standard Chartered and Citibank, but in some products, like trade finance, we also compete with domestic banks.

So what can you offer clients that these others can't? Does it come down to price?

Hornery: There is always price competition or tension but this is not how we win or lose deals. One of our great competitive advantages is our history with intermediating trade flows between Australia and the region, particularly the buying and selling of natural resources. We have been financing oil and gas and coal shipments into the region for a long time and we do the same for agricultural products like wheat, cotton and a range of other soft commodities.. The relationships we have with importers and exporters in the region are strong. We provide them with everything from working capital and letters of credit to ECA-backed financing and foreign exchange.

Macquarie Bank is making a concerted push into Asia . What do you think of their strategy and is there any overlap in your businesses?

Hornery: I used to work for Macquarie Bank so I have tremendous respect for their business model. They have a significant and extendable competitive advantage in certain areas, particularly infrastructure and equities. But they are not engaged in commercial banking activities such as trade so there isn't too much overlap between our businesses. We might run across them in a project finance deal or an infrastructure development but otherwise we don't see them. We do share a similar ideological approach, however. Like us, they are applying their intellectual capital to specific markets and products in order to build a business. This has been our strategy for a long time.

Name a few recent deals that talk to the bank's strengths.

Hornery: The list is long but I would highlight the $770 million project financing of Pusan Newport in South Korea which we arranged in December last year. Then there is the $140 million refinancing of Oxiana's copper and gold mine in Loas which we did in January, and still in Laos, the $1.58 billion project financing of the Nam Theun 2 power station. We were financial advisor, lead arranger, technical bank and insurance bank on this Nam Theun deal which closed in May. We're also doing well in the league tables. Last year our M&A team was number eight in terms of advisory in Asia ex Japan, and this year we have been number one in the syndicated loan market with 17.9% of all mandated transactions.

Your CEO, John McFarlane, has said he eventually wants Asia to represent a third of ANZ's earnings. Currently, the region only accounts for less than 10% of earnings, so this is an ambitious target. Are you closer to achieving this in 2005?

The organizational commitment I talked about before is key to achieving our growth targets and John shares the belief that Asia provides that real opportunity for us. Let me emphasize though, that we will continue to be very disciplined in the way we manage risk and invest our capital. On the financials for 05, we've made a significant number of high calibre and senior appointments into the region over the last six months and are seeing our core businesses get traction after quite a long period of limited growth. It looks particularly encouraging for the next 12-18 months.