ANZ's Bumpy Malaysia Exit

(Bloomberg Gadfly) -- Shayne Elliott is in a hurry to go home. But exiting Kuala Lumpur won't be as easy as it was to leave Singapore.

Elliott's impatience is understandable: When he took over as CEO of Australia & New Zealand Banking Group Ltd. in January last year, the lender's overseas operations were using one third of the bank's capital to generate less than a fifth of its profit.

That's changing.  In October, Elliott announced the sale of retail and wealth-management businesses in five Asian markets -- Singapore, Hong Kong, China, Taiwan and Indonesia -- to DBS Group Holdings Ltd. That left him with some A$4.1 billion ($3.1 billion) of carrying value in three major assets. Of them, ANZ  has managed to offload its 20 percent holding in Shanghai Rural Commercial Bank Co. It still doesn't have a taker for its 39 percent interest in PT Bank Pan Indonesia after talks broke down with Mizuho Financial Group Inc. But luckily for ANZ, a rival lender in Malaysia is keen to take over AMMB Holdings Bhd., of which it owns almost 24 percent.

RHB Bank Bhd., Malaysia's fourth-largest by assets, has got the central bank's blessing to merge with the somewhat smaller AmBank, as it's known. That should give Elliott the out he's looking for, provided the deal goes through.

But will it? There are at least three potential hurdles, including Aabar Investments PJSC, the second-largest investor in RHB. In early 2015,  RHB's three-way merger with CIMB Group Holdings Bhd. and Malaysia Building Society Bhd. collapsed in part because the subsidiary of Abu Dhabi's sovereign fund wanted a better price. A similar stance this time around would mean pushing RHB to acquire AmBank below its book value. That won't please Elliott.

The second stumbling block is the prospect of an early Malaysian election. As Smartkarma analyst Pranav Rao notes, any talk of layoffs could make the deal a hard sell politically.

Election season might also be an awkward time to do an AmBank transaction because of the lender's role in a $4.2 billion money-laundering scandal involving 1MDB, a Malaysian state investment fund. U.S. investigators allege that at least $700 million was siphoned from 1MDB into accounts controlled by a top Malaysian official whose description fits Najib Razak, the prime minister. Najib has acknowledged receiving $681 million as a "personal contribution" from the Saudi Arabian royal family (he says he later returned $620 million). It was his AmBank accounts that were used in the transactions.

Elliott has acknowledged compliance breakdowns at AmBank, and said that as a shareholder, ANZ had written to AmBank urging it to mend it processes. AmBank, meanwhile, seems to think that a 53.7 million ringgit ($12.6 million) fine by the Malaysian regulator should be the end of the matter

Still the many loose ends around 1MDB mean opposition parties will want to keep the saga alive.

Malaysia's last big consolidation of the finance industry was in 2000. There hasn't been a bank merger since 2010. Consequently, there's no Malaysian lender to compete against Singaporean banks in Southeast Asia. A marriage of RHB and AmBank wouldn't change that equation much, but it would at least break the jinx. It would also give Elliott give an exit from a business that earns a return on equity of 8.5 percent, compared with 10 percent at ANZ. If only the road back home was a little less bumpy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

1. Excluding ANZ's stake in Bank of Tianjin Co., now classified as an available-for-sale asset following an initial public offering in Hong Kong last year, and valued at A$795 million, according to ANZ's 2016 annual report.

To contact the author of this story: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.