Nothing talks like money....
As a kid I was in awe of the ANZ Grindlays branch in Hyderabad. Maybe it was the air-conditioned branch office or the super suave customer service executives. So it was a surprise when they sold their entire business to Standard Chartered in 2000, which in hindsight has proved costly- they lost out on the best economic decade India ever had.
Standard Chartered, building on its Grindlays business generated over $1 billion in profits in 2010.
Show me the money....
Increase in shareholders’ value is one of the many metrics by which a CEO's performance is measured. Stock appreciation and dividends are the two most common ways of returning wealth to shareholders. Share buyback is another way that a company can increase shareholders value and it gives a temporary 'pop' to share prices. How this works is that repurchased shares are absorbed by the company and the number of outstanding shares in the market reduces. The relative ownership stake of each owner increases as there are few claims on the earnings of the company.
ANZ shortly after the sale announced a buyback program to buy 16% of the outstanding shares. The share price immediately moved up and also improved the Return on Equity metric. (Lesser shares with the same levels of profit would move this metric northward). In the short term the sale achieved all its objective but has turned expensive in the long term. The current CEO of ANZ had termed the sale of the Indian unit as a 'big mistake'*. What was then termed as a prudent step to reduce the Bank’s risk profile created a situation where they forfeited a great long-term growth opportunity.
Growth is a monkey that every bank is now chasing...
As ANZ tries to find its way back into the Indian market one is reminded of Michael Porter's quote - "The essence of strategy is choosing what not to do". The Bank will be back in India- has it lost too much in not being here these past years?...time will tell. But what we know for sure is that the return into this crowded banking space would be an expensive buy in for ANZ.
*Source: http://articles.economictimes.indiatimes.com/2012-08-15/news/33216740_1_anz-india-mistake
As a kid I was in awe of the ANZ Grindlays branch in Hyderabad. Maybe it was the air-conditioned branch office or the super suave customer service executives. So it was a surprise when they sold their entire business to Standard Chartered in 2000, which in hindsight has proved costly- they lost out on the best economic decade India ever had.
Standard Chartered, building on its Grindlays business generated over $1 billion in profits in 2010.
Show me the money....
Increase in shareholders’ value is one of the many metrics by which a CEO's performance is measured. Stock appreciation and dividends are the two most common ways of returning wealth to shareholders. Share buyback is another way that a company can increase shareholders value and it gives a temporary 'pop' to share prices. How this works is that repurchased shares are absorbed by the company and the number of outstanding shares in the market reduces. The relative ownership stake of each owner increases as there are few claims on the earnings of the company.
ANZ shortly after the sale announced a buyback program to buy 16% of the outstanding shares. The share price immediately moved up and also improved the Return on Equity metric. (Lesser shares with the same levels of profit would move this metric northward). In the short term the sale achieved all its objective but has turned expensive in the long term. The current CEO of ANZ had termed the sale of the Indian unit as a 'big mistake'*. What was then termed as a prudent step to reduce the Bank’s risk profile created a situation where they forfeited a great long-term growth opportunity.
Growth is a monkey that every bank is now chasing...
As ANZ tries to find its way back into the Indian market one is reminded of Michael Porter's quote - "The essence of strategy is choosing what not to do". The Bank will be back in India- has it lost too much in not being here these past years?...time will tell. But what we know for sure is that the return into this crowded banking space would be an expensive buy in for ANZ.
*Source: http://articles.economictimes.indiatimes.com/2012-08-15/news/33216740_1_anz-india-mistake