ANZ to fill earnings hole after wealth sale

ANZ said it “remains in discussion with a number of parties” regarding the potential sale of its wealth businesses in Australia even though media reports hold that Zurich is the preferred bidder and that a deal is imminent. 

The offloading of ANZ's Wealth business comes as rival Commonwealth Bank announced the sale of its life insurance business, CommInsure, as well as a review of its asset manager, Colonial First State.

While media reports are flagging a price tag of $4 billion for ANZ’s assets, the bank has made it clear that it is also "exploring capital markets solutions to create a stand-alone business". 

According to UBS, Zurich has existing general and life insurance operations, having acquired Macquarie Life in 2016, and the acquisition of ANZ's life and wealth management business would further strengthen its position in Australia while providing good global diversification.  

“Given Zurich's current excess cash position, we see it having capacity for such a transaction, but would likely delay any increase in dividend to 2018,” UBS analysts wrote to clients.

Morgan Stanley analysts estimate that a sale could release between 80 basis points and 115 basis points of capital, with a price of $4 billion releasing 90 basis points, or $3.7 billion.
 

By the numbers

According to Richard Wiles, this raises the question of how ANZ would use the proceeds, given that it is on track to beat APRA's revised common equity tier one target of 10.5 per cent once previously announced asset sales are completed. 

“In our view, there are three potential uses: additional reinvestment in the bank’s transformation programme; a restructuring provision for further simplification and reshaping of the group's cost base; and capital management via ongoing dividend reinvestment plan neutralisation and additional buybacks.”

The analyst reckons the sale of Wealth would reduce ANZ's cash profit by $225 million or 3 per cent.

“Even assuming ANZ put aside $250 million for additional investment and raised an $500 million restructuring provision, we believe the capital release would allow it to undertake a buyback of between $2.4 billion and $4.0 billion, delivering a net earnings per share impact of between minus 1 per cent to plus 1 per cent," he said.

“If it then translated the additional investment and restructuring into a sustainable earnings uplift of $200 million, the net impact would be EPS accretion of between 2 per cent to 4 per cent within three years. We also estimate that it would lift the ROE by one percentage point."

Wiles is forecasting a 2018 cash profit of $7.15 billion for ANZ post a buy back and an earnings uplift of $200 million.

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