VZCZCXRO6171
RR RUEHPT
DE RUEHBN #0111/01 2822241
ZNR UUUUU ZZH
R 092241Z OCT 09
FM AMCONSUL MELBOURNE
TO RUEHC/SECSTATE WASHDC 5007
INFO RUEHBJ/AMEMBASSY BEIJING 0080
RUEHBY/AMEMBASSY CANBERRA 3652
RUEHJA/AMEMBASSY JAKARTA 0055
RUEHKL/AMEMBASSY KUALA LUMPUR 0004
RUEHNE/AMEMBASSY NEW DELHI 0035
RUEHGP/AMEMBASSY SINGAPORE 0236
RUEHPT/AMCONSUL PERTH 1620
RUEHDN/AMCONSUL SYDNEY 2139
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MELBOURNE 000111 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD AS
SUBJECT: AUSTRALIAN BANKS EXPANDING IN U.S. AND ASIA 
 
Summary 
------- 
 
¶1. (SBU) Australia's dominant "big four" banks have emerged 
from the global financial crisis healthy and looking abroad 
to expand.  One bank has acquired a mid-sized U.S. regional 
bank and plans to purchase more, while the other banks are 
looking to China and Indonesia for growth.  These banks are 
carrying nearly US$5.2 billion in surplus capital, giving 
them scope for further expansion and putting them on track to 
return to record profits in 2010.  Formerly large domestic 
banks with relatively small international footprints, the big 
four are now beginning to behave more globally in the 
aftermath of the financial crisis.  End Summary. 
 
What Financial Crisis? 
---------------------- 
 
¶2. (SBU) The "big four" Australian banks (Commonwealth, the 
National Australia Bank (NAB), Australia-New Zealand Banking 
Group (ANZ), and Westpac) have emerged from the global 
financial crisis (GFC) with strong balance sheets and healthy 
cash reserves.  Though their market capitalization remains 
small compared to global peers, the big four are among only a 
handful of banks to have maintained AA risk ratings through 
the crisis.  The big four, however, continue to avoid "risky" 
sectors such as real estate and the automotive industry. 
 
¶3. (SBU) Until recently, these banks avoided overseas 
investment after several ventures in the United States in the 
1990s led to losses.  In addition, the domestic Australian 
market has proven profitable enough for the big four, 
mitigating the need to take on the risks associated with 
overseas expansion.  However, the banks are looking to expand 
now that lending is slowly returning to a normal pace, 
unemployment is predicted to peak much lower than expected, 
and the GOA's stimulus measures such as the first-time 
homebuyer's incentive (which is widely lauded for holding up 
the real estate sector through the GFC) have helped limit bad 
debt expenses. 
 
Agri-banking in the USA 
----------------------- 
 
¶4. (SBU) According to Deputy CEO Michael Ullmer, NAB 
surprised its competitors by spending US$43 million to 
acquire Great Western, an 800-person U.S. bank.  Ullmer said 
the other three banks remain somewhat apprehensive about 
investing in U.S. financial institutions.  NAB believes it 
maintains a competitive edge over the other three Australian 
banks by providing regional agri-banking and sees the United 
States and the Netherlands as logical extensions of this 
business.  Ullmer indicated that NAB intends to make further 
investments in Colorado and other locations where it can 
capitalize on this expertise.  He lamented, however, that 
U.S. financial regulations are "immensely complex with 
overlapping authorities that create uncertainty and the 
possibility of things slipping between the cracks." 
 
China 
----- 
 
¶5. (SBU) ANZ is positioning itself to be an "Asian bank based 
in Melbourne" according to its recently retired Chief 
Economist Saul Eslake.  The bank plans to have 50 operating 
branches in China within five years, employing at least 2,000 
staff.  It opened its first regional bank on September 28 in 
Chongqing.  ANZ still faces regulatory hurdles such as 
obtaining approval for a locally incorporated entity and 
individual approvals for each new branch; however CEO Mike 
Smith is confident approvals will come.  (Note: Smith 
frequently touts his China credentials, citing his experience 
as HSBC's point man for China.  End note.)  In addition to 
China, ANZ has invested heavily in Malaysia and Indonesia. 
It also successfully bid against HSBC for the Australian and 
many Asian assets of the Royal Bank of Scotland. 
 
¶6. (SBU) Westpac is also looking to China to fuel what it 
views as necessary foreign expansion.  Senior economist 
Justin Smirk told Sydney Pol/Econoff that East Asia is the 
most logical base of operation for Westpac.  In 2008, Westpac 
opened its first overseas branch in 15 years with a launch of 
 
MELBOURNE 00000111  002 OF 002 
 
 
a Shanghai office.  (Note: Prior to this opening, Westpac 
opened branches in Singapore and Hong Kong in the mid 1980s. 
It has representative offices elsewhere in Asia.  End note.) 
 
Indonesia or India? 
------------------- 
 
¶7. (SBU) Commonwealth's CEO Ralph Norris told Consul General 
in an earlier meeting that his bank is focused on expanding 
operations in Indonesia.  Norris believes Indonesia's rapidly 
growing middle class prefers to save and invest with foreign 
banks and that Commonwealth's brand will work well there. 
Echoing other chief bankers' comments, Norris noted that the 
Australian domestic market is saturated and that banks must 
now look overseas to expand their deposit bases.  Norris went 
on to say that Commonwealth will stay out of India due to its 
"tangled and cumbersome bureaucracy."  NAB's Ullmer echoed 
this sentiment, saying that investing in India would require 
support from Canberra and a very long-term strategy. 
 
Comment 
------- 
 
¶8. (SBU) Australian banks do not have a good track record on 
overseas investment.  NAB had previously invested in the 
United States in the 1990s and later lost a significant 
portion of its investment.  Critics also highlight the 
cultural challenges of banking in Asia, pointing to 
"backfires" in the Republic of Korea, Thailand and the 
Philippines.  Despite this checkered history, all four of 
Australia's big banks are looking beyond their borders again. 
 After having bought just about everything in the Australian 
market, including a de facto 100 percent of the home lending 
market as well as large majorities of most other domestic 
markets, they are now looking to pick up bargains overseas. 
 
¶9. (SBU) Comment continued: The big four do not intend to 
compete head to head with their much larger global peers, 
however.  As ANZ's Mike Smith put it: "We have to be very 
niche and being niche you can still be big.  This is a big 
market."  It should be noted that as they expand overseas, 
Australian banks will continue to benefit from bank and 
deposit guarantees as well as a range of other indirect 
government subsidies. 
 
¶10. (U) This cable was coordinated with Consulate General 
Sydney and Embassy Canberra. 
 
THURSTON 
THURSTON