assessment of the anz-rbs merger in asia pacific

Himanshu Bhardwaj

An Assessment of

ANZ – Royal Bank of Scotland

Asia Acquisition

Independent Analysis

(November 2009)Author-

Himanshu Bhardwaj

[email protected]

+65-9777-2364

Himanshu Bhardwaj

2

Retail Banking Conglomerates: Australia & New

Zealand Banking Group Ltd.

24Strategic Assessment of the Merger

21

Historical Deals : Acquisition of Retail Banking

Assets

14Assessment of Assets Divested : Deep Dive

10Proposed Merger of Operations

6

Retail Banking Conglomerates: The Royal Bank of

Scotland Plc

►

Contents

Slide

Himanshu Bhardwaj

Australia & New Zealand Banking Group Ltd.

Australia and New Zealand Banking Group Limited provides various banking and financial products and services to retail, small business, corporate, and institutional clients primarily in Australia and New Zealand. It offers transaction banking and savings products, such as term deposits, V2+, and cash management accounts; housing finance for owner occupied and investment purposes; consumer and commercial credit cards, e-payment products, personal loans, and merchant payment facilities; and motor vehicle and equipment finance, operating leases, and investment products. The company also engages in financial planning, margin lending, insurance distribution, and trustees businesses, as well as offers rural commercial and agribusiness products to customers in rural and regional Australia. In addition, Australia and New Zealand Banking Group provides working capital solutions, including lending and deposit products, cash transaction banking management, trade finance, international payments, clearing, and custodian services; risk management services in relation to foreign exchange, interest rates, credit, and commodities, which include origination, underwriting, structuring and risk management services, and advice and sale of credit and derivative products; and financing and advisory services, structured financial products, leasing, private equity finance, project finance, leveraged finance, and infrastructure investment products. As of September 30, 2008, it operated approximately 1,346 branches worldwide. The company was founded in 1835 and is headquartered in Melbourne, Australia.

Market Capitalization: AUD 56.3bn

Diluted EPS: AUD 1.31

Shares Outstanding: 2.5bn

Dividend: AUD 1.2

P/E: 17.1x

Dividend Yield: 5.34%

Employees: 36,094

Source: Capital IQ/ businessweekonline.com

Himanshu Bhardwaj

Key Financial Indicators: ANZ Bank

32,36426,490Total Equity

141,984156,519Total Other Liabilities

871871Total Preferred Equity

31,49325,619Total Common Equity

476,98747,0293Total Liabilities & Equity

Values in Australian Dollars Millions

September 2009

(Estimated)

September 2008

(Restated)Balance Sheet -

ANZ

302,639287,284Total Current Liabilities

476,987470,293Total Assets

326,889337,758Other Items

2,0621,592Net Property, Plant & Equipment

94,24092,279Total Current Assets

53,79638,664Total Cash & Short Term Investments

Values in Australian Dollars Millions

September 2009

(Estimated)

September 2008

(Restated)Income Statement -

ANZ

2,9433,319Net Income

4,3804,515Earnings Before Taxes (Including Unusual Items)

4,8954,836Earnings Before Taxes (Excluding Unusual Items)

4,8954,836Operating Income

5,9955407Operating Expenses

10,89010,243Gross Profit

10,89010,243Total Revenues


Growth (year-on-year)

Margin Analysis

Profitability

Performance Indicator

50.35% SG&A Margin

10% Return on Equity

26.41% Tangible Book Value

Industry Comparison

ScaleKey Multiple

-20.11%

Diluted EPS Before Extra

6.32% Total Revenue

0.62% Return on Assets

HighLow

Himanshu Bhardwaj

Franchise/ Partnership Sectors

Strategic Growth Sectors

Future Penetration Sectors

Earnings Estimate : ANZ

Source: Capital IQ/ businessweekonline.com and ANZ Investor Relations Pac

ANZ Bank: “Focused Approach with Super Regional Strategy”With a Robust Balance Sheet, Positive Investor Confidence and Strong Economic Fundamentals, ANZ Bank will be aggressive in the next 2 years with its Retail Banking, Wealth Management and Institutional Banking operations. The growth will be a function of geographic expansion through M&A and Joint Ventures, alongside new product offerings

Fiscal Stimulusas a % of GDP

Budget Surplus, 2008

Road Ahead: ANZ Bank

Himanshu Bhardwaj

Contents

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Assets



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Scotland Plc►

Slide

Himanshu Bhardwaj

Royal Bank of Scotland Group plc

The Royal Bank of Scotland Group plc, through its subsidiaries, offers banking and financial services to personal,commercial, corporate, and institutional customers worldwide. It operates in four divisions: Global Markets, Retail Markets, RBS Insurance, and Manufacturing. The Global Markets division provides debt and equity financing, risk management, and investment services; and global payments, cash and liquidity management, trade finance, merchant acquiring, and commercial card products and services. The Retail Markets division offers retail, commercial and corporate banking, and wealth management services under the Royal Bank and NatWest brands in the United Kingdom; retail and corporate banking services under the Citizens and Charter One brands in the United States; retail and commercial banking services in Europe and the Middle East; and affluent banking, cards and consumer finance, business banking, and international wealth management services under the RBS Coutts brand in Asia. The RBS Insurance division sells and underwrites general insurance, primarily motor insurance, property insurance, and commercial insurance under the Direct Line, Churchill, Privilege, Green Flag, and NIG brands. It offers its retail and SME insurance over the telephone and Internet, as well as through brokers and partnerships. The Manufacturing division provides operational technology, customer support in telephony, account management, lending and money transmission, global purchasing, property, and other services. The company was founded in 1727 and is headquartered in Edinburgh, the United Kingdom

Market Capitalization: GBP 2,100bn

Diluted EPS: GBP -1.42

Shares Outstanding: 56.4bn

Dividend: NIL

P/E: 100x

Dividend Yield: NIL

Employees: 199,600


Himanshu Bhardwaj

Key Financial Indicators: RBS


Values in British Pounds Millions

January 2009

(Estimated)

January 2008

(Restated)Income Statement -RBS

-23,5417,549Net Income

3,971-76Earnings from Discontinued Operations

-40,6679,832Earnings Before Taxes (Including Unusual Items)

-6,6439,652Earnings Before Taxes (Excluding Unusual Items)

-6,6439,652Operating Income

24,52518,458Operating Expenses

17,88228,110Gross Profit

17,88228,110Total Revenues

60,71354,421Total Equity

1,073,374499,016Total Other Liabilities

1,8341,383Total Preferred Equity

58,87953,038Total Common Equity

2,401,6521,840,829Total Liabilities & Equity

Values in British Pounds Millions

January 2009

(Estimated)

January 2008

(Restated)Balance Sheet - RBS

1,267,5651,287,392Total Current Liabilities

2,401,6521,840,829Total Assets

740,718281,355Other Items

15,08115,314Net Property, Plant & Equipment

1,323,002936,698Total Current Assets

322,851607,462Total Cash & Short Term Investments

Growth (year-on-year)

Margin Analysis

Profitability

Performance Indicator

127.06% SG&A Margin

-46.21% Return on Equity

106.35% Tangible Book Value

Industry Comparison

ScaleKey Multiples

-459.54% Diluted EPS Before Extra

-23.34% Total Revenue

-1.44% Return on Assets Earnings Estimate : RBS

HighLow

Himanshu Bhardwaj

Evasive Measures: RBS Decides on Core Business Divisions

The Royal Bank

of Scotland

Corporate is a provider of banking, finance, and risk management services

to the corporate and SME sector.It offers a full range of banking

products and related financial services through a nationwide network of

relationship managers, and also through telephone and internet channels.

The product range includes asset finance

Retail offers a comprehensive range of banking products and related financial

services to the personal market. It serves customers through the RBS and other allied networks of branches and ATMs across the globe, and also through telephone and internet channels

Wealth provides domestic and international private banking and investment services through

primarily RBS Coutts

Global Banking & Markets is a leading banking partner to major corporations

and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. The division is organized along seven principal business lines: money markets; rates flow trading; currencies; commodities, equities; credit markets and portfolio management

& origination

Global Transaction Services ranks among the top five global transaction services providers, offering global

payments, cash and liquidity management, and trade finance, United Kingdom and international merchant acquiring and

commercial card products and services. It includes the Group’s corporate money transmission activities in the United

Kingdom and the United States

Insurance sells and underwrites retail and SME insurance over the

telephone and internet, as well as through brokers and partnerships. Its brands include Direct Line, Churchill and Privilege, which

sell general insurance products direct to the customer, as well as Green Flag and NIG. Through its international division, RBS Insurance sells general insurance,

mainly motor, in Germany and Italy. The Intermediary and Broker division sells

general insurance products through independent brokers

Source: 6-k Filing of the RBS with the SEC, USA

Weather the Storm:

Management of RBS decided to focus on core business divisions and assets, in February 2009

Himanshu Bhardwaj

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Scotland Plc

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Himanshu Bhardwaj

The Royal Bank

of Scotland

Retail offers a comprehensive range of banking products and related financial

services to the personal market. It serves customers through the RBS and other allied networks of branches and ATMs across the globe, and also through telephone and internet channels

Wealth provides domestic and international private banking and investment services through

primarily RBS Coutts

Global Banking & Markets is a leading banking partner to major corporations

and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. The division is organized along seven principal business lines: money markets; rates flow trading; currencies; commodities, equities; credit markets and portfolio management

& origination

Global Transaction Services ranks among the top five global transaction services providers, offering global

payments, cash and liquidity management, and trade finance, United Kingdom and international merchant acquiring and

commercial card products and services. It includes the Group’s corporate money transmission activities in the United

Kingdom and the United States

Source: Company Press Releases: RBS & ANZ

Taiwan

Hong Kong

Singapore

Indonesia

TaiwanPhilippines Vietnam

�2.2 Million Customer Base�Over 50 Branches�Over 80 ATM’s�Assets of USD 3.6bn�Over 5,400 employees

�Debt Financing�Risk Management�Investment Services�Global Payments�Cash & Liquidity Mgmt

ANZ’s vision of

becoming a ‘Leading Super Regional Bank’ was the background to its 7 month discussions with RBS, on acquiring its retail banking assets in Asia. The Infrastructure, Human Capital and Assets Under Mgmt, associated with the assets would be a part of the proposed deal

RBS Assets in Asia, part of the Proposed Merger with ANZ

Himanshu Bhardwaj

Salient Features of the Proposed Merger

Assets put on

divesture include Retail & Commercial Banking operations in Taiwan, Hong Kong, Singapore, and Indonesia and the onshore Global Banking & Markets (GBM) and Global Transaction Services (GTS) operations in the Philippines, Vietnam and Taiwan (excluding securities)

Premium

Funding

Earnings

ANZ Vision

ANZ’s Accelerated Growth Strategy

Over 9% premium of USD 50 million on the recapitalized net tangible value of the assets under management;

RBS shareholders will be reasonably happy

100% cash transaction, funded by ANZ’s recent institutionalshare placement and share purchase plan. Historically,

landmark transactions such as that of ABN AMRO were highly leveraged

The merger is expected to be Cash EPS accretive within 2years of post-completion

In line with the ANZ’s growth strategy of organic and strategic expansion, as it intensifies its geographic presence in Greater

China, South East Asia and Indochina regions

Assets

54 Branches, USD 3.2bn loan portfolio, USD 7.1bn in deposits serving a client base of over 2 million. As of December 31, 2008,

the operations on block generated a profit of USD 156mnon sales of USD 4.6bn and an asset base of over USD 3.6bn

KeyAgreements

Transitional Services Agreement and Retention Agreementsare in place with key RBS employees. A Product SupplyAgreement has also been framed between ANZ and RBS

Source: Deal Info from Company Press Releases and RBS:6-k filed with the SEC, USA

Himanshu Bhardwaj

Investor’s Confidence in ANZ Corporate Actions:

Approval of the Proposed Deal

With RBS and ANZ inking the deal, ANZ shares saw a rally in purchase, with an estimated 113% rise in volume traded.

ANZ prices jumped over 9%as speculation broke within the investors, who welcomed the initial stages of discussion

Australia & New

Zealand Banking Group Ltd. (ASX: ANZ) and PT ANZ Panin Bank signed an agreement to acquire Retail, Wealth and Commercial Businesses in Asia from Royal Bank of Scotland Group plc (LSE: RBS) for USD 550 million on August 4, 2009.This sale to ANZ follows the completion of the strategic review and the announcement onFebruary 26, 2009 that RBS was to dispose of its Retail & Commercial businesses across Asia.

Source: ANZ Pricing from Bloomberg and Deal info from Capital IQ (S&P)

Himanshu Bhardwaj

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Scotland Plc

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Himanshu Bhardwaj

Assessment of Assets Divested by RBS: Greater China

Established in 1970

220 Staff

Full License - corporate and personal banking, including domestic & foreign currency lending, private banking Fx,

trade finance

Hub for NE Asia regionalbusiness and APEA institutional

Retail & Commercial

6 Branches

Customer Base: 30,000

Deposits@ USD 1.6bn

Branch &DistributionNetwork

ProvidesBase for WealthBusiness

Priority

EnlargedCustomerBase for

Greater ChinaCommercialProposition

Hong Kong assets of

RBS will aid ANZ to scale up its presence with a greater access to a distribution network. Apart from building on its retail banking, ANZ may also concentrate on a robust wealth management business. In conjunction with the ANZ vision for Greater China, Hong Kong will be a hub for its expansion strategically

Hong Kong

Priority Assessment for ANZ utilizing the RBS Assets in Hong Kong

Source: Merger Documents: ANZ/ RBS

Himanshu Bhardwaj

Assessment of Assets Divested by RBS: Greater China (contd)

Retail & Commercial

21 branches, over 16 licenses

Customer Base: 1.3mn

Deposits@ USD 2.7bn

ProvidesBase for WealthBusiness

Priority

EnlargedCustomerBase for

Greater ChinaCommercialProposition

Taiwan assets will

benefit ANZ with a greater market participation through the global banking and global transaction services of RBS. Apart from building the institutional business, ANZ will have a bigger role to play in the retail banking and wealth management businesses. In conjunction with its China vision, Taiwan will aid ANZ in leapfrog competition into Greater China organically

Established in 1980

60 Staff

Wide variety of individual, corporate and commercial, trade finance and foreign

exchange services

Springboardfor institutionalgrowth thoughglobal markets

& globaltransactionservices

Institutional Banking, access toGlobal Banking & Markets &Global Transaction Services

Taiwan

Retail Bankingcan be beefedup with a

scalable creditcards market

Priority Assessment for ANZ utilizing the RBS Assets in Taiwan


Himanshu Bhardwaj

Assessment of Assets Divested by RBS: Indochina

Priority

Established in 1993

580 Staff



Institutional Banking, access toGlobal Banking & Markets &Global Transaction ServicesVietnam assets will

benefit ANZ’sinstitutional banking and access to RBS global banking and global transaction services. Under this umbrella, ANZ will acquire services such as cash and liquidity management for corporate clients, debt financing and risk management

Vietnam

Locally incorporated, leading foreign bank in Vietnam

Subsidiaries and JV’s such as-Sacombank: 2005 (10% stake)

Saigon Securities: 2007 (18% stake)

9 branches & transaction officesin Hanoi & Ho Chi Minh city

1 branch with a Customer Baseof 60 representing a deposits@

USD 45mn

Priority Assessment for ANZ utilizing the RBS Assets in Vietnam


Himanshu Bhardwaj

Assessment of Assets Divested by RBS: South East Asia

Excellent Liquidity

support forInstitutional

growth

Priority Propel the

OnshoreWealth

ManagementBusiness

Singapore assets will

qualify ANZ for a full banking license that will enhance its offshore retail and wealth management businesses. The RBS assets are deem fit for ANZ’sonshore wealth management business expansion. The deposits and assets under management will act as a catalyst to increasing liquidity stand for ANZ’sinstitutional banking

Established in 1974

Strategic fit forapplication of Full Banking

License

Singapore

Full Wholesale Banking License

Hub for S&SE Asia regional business,

Retail & Wealth Asia Pacific, Operations & Technology

Over 520 employees

Retail & Commercial

5 branches


Deposits@ USD 1.9bn

Priority Assessment for ANZ utilizing the RBS Assets in Singapore


Himanshu Bhardwaj

Assessment of Assets Divested by RBS: South East Asia (Contd)

Priority

Opportunityof increasing the Credit Cardpenetration

Indonesian RBS assets

coupled with ANZ’s long standing presence will provide an impetus on accelerating its retail banking and wealth management presence. A strong partnership with PT Panin Bank, backed by the recent acquisition of a further 8.4% stake for USD 144mn, gives a strong indication of ANZ’s focus on the Indonesian markets

Established in 1973

Acceleration ofRetail Banking& Wealth Mgmt

offerings

Indonesia

9 branches in Jakarta, Surabaya, Medan & Semarang

Over 480 employees

Subsidiaries and JV’s such as-PT ANZ Panin: 1993 (85% stake)

PT Panin Bank (38% stake)

Retail & Commercial

20 branches


Deposits@ USD 0.8bn

Priority Assessment for ANZ utilizing the RBS Assets in Indonesia


Himanshu Bhardwaj

Assessment of Assets Divested by RBS: South East Asia (Contd)

Established in 1990Philippines

Full service commercial bankspecializing in corporate banking,

trade finance, international remittances and treasury

Over 60 employees

Subsidiaries and JV’s such as-Metrobank Card Corp.: 2003

(40% stake)

Institutional Banking, access toGlobal Banking & Markets &Global Transaction Services

1 branch with a Customer Baseof 100 representing a deposits@

USD 40mn

Priority



Philippines assets will

benefit ANZ’sinstitutional banking and access to RBS global banking and global transaction services. Under this umbrella, ANZ will acquire services such as cash and liquidity management for corporate clients, debt financing and risk management

Priority Assessment for ANZ utilizing the RBS Assets in Philippines


Himanshu Bhardwaj

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Scotland Plc

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Slide

Himanshu Bhardwaj

The acquirer entered into an agreement to purchase substantially all of Fremont Investment & Loan's assets which include the participation interest in certain previously sold commercial real estate loans, the assumption of all the Fremont's deposits and the acquisition of all the Fremont's branches for an estimated USD105.2mn

CapitalSourceInc.

Fremont Investment & Loan, 22 Retail Banking Branches

April 2008

The six retail banking branches were successful integrated into Prosperity Bank’s Houston operations for an estimated USD 104.29mn

Prosperity BankBanco Popular North America, Six Retail Branches In Houston

October 2007

The acquirer paid USD 2.22bn for acquiring RBTT Financial in the Caribbean. The retail operations of the target were one of the biggest in the region.

Royal Bank of Canada

RBTT Financial Holding

October 2007

The Consortium acquired ABN AMRO Holding N.V. from Children's Investment Fund Management (UK) LLP and other shareholders for USD 99.17bn

Royal Bank of Scotland Group plc, Fortis SA/NV, BancoSantander SA

ABN AMRO Holding N.V.

April 2007

Post Merger

Performance

Integration

of Assets

Geographic

Expansion

Deal SummaryAcquirerTarget

Company

Date

Historical M&A in the Retail Banking Space (2007-09)

Represents the Degree of Success

Himanshu Bhardwaj

The acquirer agreed to acquire Wells Fargo’s businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits for an estimated USD 15.12bn

Wells Fargo & Company

Wachovia Corporation

October 2008

The acquirer agreed to pay USD 1.1bn to Bradford & Bingley plc for its £20 billion retail deposit base and Bradford & Bingley's direct channels including 197 retail branches, 141 agencies and related employees

Abbey National plc

Bradford & Bingley plc, Retail Deposits and Branch Network

September 2008

The acquirer offered to take up the remaining 50% stake in Tesco Personal Finance from Royal Bank of Scotland for an estimated USD 1.9bn. The focus of the acquisition was on the retail operations

Tesco PLCTesco Personal Finance Ltd.

July 2008

The acquirer additional 8.4% stake in PT Bank Pan Indonesia Tbk from institutional investors for approximately USD 115 mn

Australia & New Zealand Banking Group

PT Bank Pan Indonesia Tbk

January 2009

Post Merger Performance

Integration of Assets

Geographic Expansion

Deal SummaryAcquirerTarget Company

Date

3/4th of the M&As fail to reach financial or operational synergies. The largest M&A in the banking industry, the ABN

AMRO acquisition being a latest casualty, which lead to a demise of the acquirers in a span of 15 months. However, it can be ascertained, that acquisition of regional assets and operations proves more synergistic and leads to greater growth

Historical M&A in the Retail Banking Space (2007-09) (contd)

Represents the Degree of Success

Himanshu Bhardwaj

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Scotland Plc

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Himanshu Bhardwaj

Opportunity Assessment on Emerging Market Segments

Competitive

Benchmarking: A Strategic Assessment of the ANZ Assets performance, post amalgamation with the RBS operations in Asia.

The matrix represents the Market Penetration of the respective assets vis-à-vis the growth potential in each geography

Himanshu Bhardwaj

628 501127

1,761

774 987

0

1000

2000

RBS Asia ANZ Asia Pacific

Financial Positions (in AUD mn)

Operating Income Operating Expense Profit Before Provisions

Financial

Benchmarking of the RBS assets acquired, vis-à-vis those of ANZ Asia Pacific and ANZ Group respectively; provides a strong synergistic overview of the deal.

ANZ will stand to benefit, with a 23% increase in customer deposits, a 15% increase in net loan and advances, alongside a whopping 66% increase ready customer base.

Net Loans & Advances

RBS Asia

ANZ Group

ANZ Asia Pacific

AUD 356,800mn

AUD 3,996mn

AUD 22,583mn

Customer Deposits

RBS Asia

ANZ Group

ANZ Asia Pacific

AUD 226,444mn

AUD 8,880mn

AUD 29,623mn

Risk Weighted Average Assets

RBS Asia

ANZ Group

ANZ Asia Pacific

AUD 280,882mn

AUD 8,014mn

AUD 39,375mn

Customers

RBS Asia

ANZ Group

ANZ Asia Pacific

6 Million

2 Million

1 Million

12,588

6085 6503

0

10,000

20,000

ANZ Group

Financial Positions (in AUD mn)

Operating Income Operating Expense

Profit Before Provisions

Source: Merger Documents: ANZ

Financial Benchmarking of ANZ and RBS Operations - Asia

Himanshu Bhardwaj

Thank You