Higher margins bolster ANZ
Sydney Morning Herald
Saturday February 27, 2010
ANZ has declared the economy is at a "turning point" after a fall in bad debts, with fatter margins set to propel the Asia-focused lender to a record half-year profit of as much as $2.4 billion.The bank rounded off a flurry of updates among the big four over the past two weeks, showing they have emerged from the global financial crisis among the best performing in the world.Commonwealth Bank and Westpac, which have the biggest exposure to the resilient housing market, have both delivered updates that position each for a record year of earnings.While not directly comparable to ANZ's four-month effort, Commonwealth recently handed down a 54 per cent jump in first-half profit to $2.9 billion while Westpac's first quarter-result of $1.6 billion came in at 33 per cent over last year.But National Australia Bank, which has a bigger exposure to business lending and the troubled British market, returned flat first-quarter profit growth.In a regular update to investors yesterday, ANZ reported an underlying profit after tax of $1.6 billion for the four months to January 31 - a better-than-expected 16 per cent jump on the same time last year.The result comes as ANZ's long-serving chairman, Charles Goode, retires this weekend after nearly two decades with the bank's board.Director John Morschel was last year named to head the board.Although ANZ did not provide a forecast, its four-month effort implies an annualised profit of $4.8 billion. In October, the bank reported a full-year underlying profit of $3.72 billion.The update is likely to trigger a round of earnings upgrades among analysts, given the stronger performance on revenue and lower provision charges to cover bad debts.While the bank's 35 per cent drop in lending losses - particularly across mortgages and personal lending - is a sign of improved health in the economy, ANZ's chief executive, Mike Smith, still expressed some caution over the near-term outlook for bad debts given fresh jitters in European bond markets.ANZ recorded revenue growth of about 8 per cent for the four months. However this was offset by cost growth of 7 per cent, with new acquisitions in Asia soaking up additional expenses.Lending growth was modest, but earnings were boosted by a 14 basis point rebound in interest margins over the past few months. The fatter margins - a key driver of profits - came about after the bank passed on higher funding costs to mortgage customers and raised lending charges to big customers.Significantly, Mr Smith said credit quality stabilised late last year and has since been showing signs of improvement.ANZ shares ended up 4 per cent at $23.14.After a string of missteps in recent years, Mr Smith said ANZ had been rebuilt under a new management team and was now a more predictable organisation for shareholders.Mr Smith also rallied against the prospect of banks being forced to move to tougher global regulations, which threaten to crimp profits and potentially lead to higher lending costs.He warned all banks faced being forced to pay for the damages caused by the few."The danger has been that the two most wounded countries in the world, the US and the UK, are scripting the new changes and I think that is particularly dangerous," Mr Smith said.
© 2010 Sydney Morning Herald