Wry & Dry

ANZ shreds gazillions of shareholders' funds

In the early 1980s, W&D was working as a minion for Schroders, the venerable UK merchant bank [1], in Asia.  And well remembers the transaction when Lloyds Banks and Citibank appointed Schroders to sell Grindlays Bank, the Hong Kong-based bank (with a strong presence in India) they jointly owned. 

W&D carried the briefcases, checked the luggage, arranged the meetings, booked lunches and generally hovered at the beck and call of the-great-and-the-good.  So the-great-and-the-good could sell this little gem of a bank. 

Image result for grindlays bank logo

Institutions across the world were approached, a short-list formed, due diligence undertaken, bids made, negotiations undertaken and in 1984 a winner announced.  Behold!  ANZ was the winner, paying what W&D’s mother would say was, “a lot of money in those days.” 

So, ANZ’s shredding of shareholders’ funds began.

  1. In 1984 ANZ announced it was entering Asia (by buying Grindlays).
  2. In 2000 ANZ announced it was leaving Asia (by selling Grindlays).
  3. In 2007 ANZ announced it was re-entering Asia (by over the next few years buying or expanding banking businesses in at least 13 Asian countries [2]). 
  4. In 2016 ANZ last week announced it was leaving Asia.

W&D is delighted to have been there in the beginning of ANZ’s sacrifice of hundreds of millions of dollars of shareholders’ wealth to investment bankers, lawyers, accountants, real estate agents, re-location agents, regulators, travel agents, airlines, hotels, restaurants, night club owners, owners of other open-only-at-night establishments, golf clubs, etc, etc, ad infinitum, ad nauseum, and to other deserving and undeserving others.

But let not W&D think only of the shareholders’ losses.  Think of the executives’ main benefit.  Frequent Flyer points.  Just imagine the points racked up by all those bankers flying around Asia.  Especially those flying at the sharp end.  The very sharp end.

There is a serious side to all of this.  The ANZ board paid its former CEO, Mike Smith, some $88m over seven years.  ANZ's share price went down 6% over those seven years.  A remarkable achievement indeed!

Smith's major strategic decision was the Asia re-entry, a decision fully supported by the board.  That strategic decision was a lamentable failure.  Smith still got his bonuses, including over $9m last year for working just three months.

And now the board have approved ANZ's new CEO abandoning the Asia strategy.  

Hold the phone!  Shouldn't there be some accountability here?  Smith clearly isn't going to repay any dosh.   Perhaps the board should do the honourable thing.  

But, perhaps that might be too much to ask, in these years of bank board self-interest.

[1]  A merchant bank was creature of essentially restrictive religious lending edicts (against usury) in the 11th century.  Originally they provided finance by issuing what were effectively IOUs (bills of exchange), with the repayment amount higher than the issuing amount – the difference being a capital gain.  In reality, of course, it was interest, or a discounted amount.  Over the years and with the rise of Protestantism organisations such as Barings, Schroders, Warburg, Rothschild, etc arose across Europe, offering a broader range of financing and investing services.  They became a blend of a lending institution, an investment bank (i.e. mergers, acquisitions, etc) and investment management.  The merchant banks in the UK become known as ‘issuing houses’ as they issued bills of exchange.  Merchant banks have morphed into purer lines of business (e.g. Schroders is now just an investment management business) or went bust (readers will remember Barings, Britain’s oldest bank,, which went broke because of one trader’s (Nick Leeson) unauthorised foreign exchange dealings).

[2] India, Philippines, Vietnam, China, New Guinea, Indonesia, Hong Kong, Malaysia, Indonesia, Taiwan, Myanmar, Laos, Cambodia. By W&D reckoning, that left more or less only Mongolia without the ANZ logo.