ANZ is in a good position to fetch a “decent price” for its wealth unit, since the lender could list the business separately if the three shortlisted bidders fail to impress with their offers, according to Omkar Joshi, a Sydney-based portfolio manager at Regal Funds Management.
The consensus valuation of the division – which includes life insurance and fund management operations – is “A$4-5 billion” (US$3-3.8 billion), according to Joshi.
According to a Bloomberg report last week, which cited unnamed sources, the bank has invited AIA Group, MetLife and Zurich Insurance Group to make second-round bids for the wealth unit by 15 September. This sees a number of other insurers, financial services firms and banks fall out of the race.
“With three into the second round, pricing will be competitive so it’s not going to be a steal for whoever wins,” says Joshi, adding that the option of an IPO for the wealth unit is a relatively common tactic in the market as it “adds a bit more competitive tension to the bidding process”.
Joshi notes that while the three remaining insurers will probably be mainly interested in the insurance component of the business, it would be costly and difficult for ANZ to split the unit in two. “As a result, ANZ wants the buyers to buy the whole lot, but it wouldn’t be a surprise if the three bidders put in bids for the whole business as well as non-conforming bids for the life business.”
Of the remaining suitors, AIA Group has the largest and strongest presence in the Australian life insurance market, and the firm would likely be aiming to build on its healthy position through the takeover, says Joshi.
Meanwhile, Zurich Insurance Group may have further growth ambitions after the firm bought Macquarie’s life risk insurance portfolio last year, he adds.
“Zurich has already acquired a business in the same space last year which shows that they could pull the trigger, and maybe they find that part of the market attractive at the moment and are keen to grow.”
For Metlife, which has only a small presence in the country’s group life insurance segment, the deal would provide a meaningful foothold into the life insurance market. “On top of that, they will also have distribution agreements with ANZ. That’s potentially what Metlife is attracted by, relative to say AIA, which already has production and distribution capabilities and doesn’t really need the bank channel,” Joshi says.
According to data from NMG Group, ANZ’s life insurance business accounts for a 10-13% market share in Australia, making it the sixth largest.
ANZ has said it expects to announce a winning bidder by the end of 2017. Group CEO Shayne Elliott said recently that the bank is looking for a “partnership model” whereby the winning bidder manufactures products that ANZ will distribute to clients.
Beyond its home market, ANZ also sold its wealth business in Hong Kong, Singapore, Taiwan, Indonesia and China to Singaporean lender DBS last year.
Australia’s private wealth exodus
ANZ’s wealth unit sale points to a broader trend in the Australian banking sector, whereby several lenders are divesting their wealth arms to focus on their core competencies.
Suncorp Group announced in February this year that it was considering the sale of its life insurance division.
This followed National Australia Bank’s (NAB) sale of 80% of its life insurance business in Australia to Nippon Life Insurance last year, while NAB said in May this year that it had agreed to sell its private wealth business in Hong Kong and Singapore to OCBC.
Meanwhile, several global banks have retreated from Australia’s private wealth sector. Last September, Deutsche Bank Wealth Management announced that it was exiting its onshore business in Australia, while in 2015, UBS Wealth Management’s Australia business was spun off to ultimately create Crestone Wealth Management.
Joshi says that life insurance in particular has been a difficult segment, with significant pricing and claims pressures leading to poor returns.
“Life insurance businesses tend to be capital intensive,” says Joshi, adding that Australian regulators have implemented stringent capital requirements which means banks are looking for ways to free up capital.
“Getting out of these businesses is basically a redeployment of existing capital, and the banks can still hang on to the distribution and actually let someone else manufacture the product. Banks already do this with their general insurance products – some of them do produce their own products, like Commonwealth Bank – but Westpac, for example, just sells existing products through their branch network quite well.
“The difficult thing is actually finding someone to buy both the life and wealth business and paying a decent price. That’s a legitimate challenge that the industry is facing,” Joshi says.