Australian banks hoping to make inroads in China have their work cut out for them, writes Max Mack from Hong Kong.
Having just returned to Hong Kong from the annual holiday in Australia it’s easy to spot the fellow expats on the plane: we all look exhausted!
I’m not sure what just happened, but it only vaguely reminded me of a holiday.
But it wasn’t all bad. Having been in banking for many years, who wouldn’t enjoy catching up with relatives who complain to you about the customer service offered by the Australian branch of my employer? I mean, of course my role in Hong Kong means I can get your fees reduced. Silly of me not to have done it already. We have systems that notify us whenever relatives’ accounts are debited with unjustified fees, you know. All we have to do is then imagine the fee reduced and it happens! Must be forgetfulness on my part.
Unfortunately, I’m kidding about the imagination-activated systems. But this scenario reminded me of the challenges facing banks doing business in Asia. Take the case of Commonwealth Bank. One of their partner banks is under investigation by the Chinese banking regulator after the bank’s auditor noticed irregularities in their accounts. It turns out, “irregularities” is accountant-speak for “$200m fraud”.
And therein lies the problem for CBA’s Australian senior executives. They most certainly would have done their due diligence on their Chinese partner before acquiring the maximum-allowed 20 percent. Then enjoyed a few years of relatively good relations (which is as good as minority stakes often go in Asia), and then BAM! Your reputation is dragged into the murky, clichéd world of Asian equity minority stakes.
What to do? Somewhere in the original business case for the investment would have been a PowerPoint slide listing the necessary ingredients for a successful acquisition: A$50m for stake? Check. Regulatory approval? Check. Supported by Australian analyst community? Check. Thick skin and resilience to persevere when the going gets tougher than anticipated? Check.
It’s that last one that’s important now. CBA needed to remind investors and analysts that changing risk management cultures in China is not an overnight project. Shame.
So far, that’s what their PR team is doing. Let’s watch how well they stick to their message through the Australian summer.
The other Australian banks making moves in Asia face similar headwinds over time. ANZ (which I’ve heard stands for “Asian and New Zealand Banking Corporation”) is busy bedding down their RMB licence in China. They continue to expand at breakneck speed, going from around 200 staff in Hong Kong two years ago, to over 1,000 after the RBS acquisition. Such growth doesn’t come effortlessly or without distraction.
ANZ is currently learning a tough post-integration lesson. After all the press announcements about “synergies” and “working together”, after the integration project teams have concluded and been disbanded, the real alignment begins.
Mike Smith will no doubt focus on ensuring his executives are aligned this year. To keep office politics in the background, clarity is needed to ensure his various businesses have the level of alignment necessary to deliver on their acquisition synergy targets.
It is not suggested all businesses need to be perfectly aligned. In fact, ANZ may prefer a decentralised, or localised, “portfolio of businesses” approach, rather than a centralised command structure. Where ANZ decides to be on the centralised-decentralised spectrum is a matter for them. What is important is that they are clear to their executives and staff where they decide to stand.
It is a lesson for all companies looking to begin businesses in Asia, or expand them further. Clarity of vision, and management alignment is paramount. I’m not talking about the vision statement, or putting pictures of rowers on the wall with the word “teamwork” below. I’m talking about ensuring that staff are clear on the degree of entrepreneurship expected of them. Are they pioneers, looking for local market opportunities? Or are they implementing products from head office with only limited or minor localisation?
I am reminded of some advice I received years ago about banking acquisitions. “Just remember,” I was told, “that all the assets walk out the door every day at 6pm.”
Macquarie Bank appears to manage this relatively well. Head office provides the platform, balance sheet, and oversight to support local businesses. Local businesses look for opportunities where they can adapt flagship strengths to generate revenue.
My point is not that any particular decentralisation stance is better than any other. Rather it is that clarity of stance is the key. This is the challenge for all companies operating across borders.
Meanwhile in Australia, rebuilding has commenced following some of the nation’s worst natural disasters from flood to cyclone and bushfire. The rebuilding will commence and with it will come stories of true Australian mateship, and communities supporting one another.
And it’s this resilience to build and rebuild that is one of the qualities that attracts Aussies to China, and ensures Aussies are in demand in the region. ■
*Originally from Sydney, Max Mack is a long-time expat and banker currently living in Hong Kong.