From the November 2002 issue of Investment Advisor • Subscribe!

Part 3: Bank on It

Investing in a bank down under

Consider the Australia and New Zealand Banking Group (trading on the NYSE as ANZ). This Melbourne, Australia-based company offers a full range of financial services in Australia, New Zealand, and Asia, taking deposits, offering mortgages, car loans, credit cards, overdrafts and term loans, electronic banking, commercial banking, trade finance, and foreign exchange. The company also offers (through wholly-owned subsidiaries) investment products and advice, trusts, insurance, and leasing services.

Like many countries, Australia has a much more concentrated banking market than the U.S. In that market, National Australia Bank (NAB) and Commonwealth Bank of Australia are the largest players, ANZ is about tied with Westpac Banking (WBK) for third place, and then it's a big drop-off to the smaller banks. Originally known as the Bank of Australasia (and I had thought that Morgan Stanley made up that word), the Australia and New Zealand Banking Group goes back to the 1830s, and is among the top 100 banks worldwide.

The company's stock is held in both the iShares MSCI Australia Index fund (EWA) and the Commonwealth Australia/New Zealand fund (CNZLX). It makes up 6.3% of the market-cap weighted iShares fund, and 1.6% of the Commonwealth fund. That may look like an underweighting in the latter case, but it isn't really, given that the Commonwealth fund is focused on small-cap New Zealand companies, it has a broader underweighting relative to the EWA in financial services, and the Commonwealth fund's largest bank position is the Australia and New Zealand Banking Group.

At a recent price of $47 (U.S. dollars), the company's stock is about in the middle of its 52-week range. The stock, like much of the region's equities, is cheap despite the area's growth. At the recent price, the stock has a P/E of 13 times expected earnings for the 12 months through September 2002, and is selling for 2.8 times book value.

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