ANZ shares soar on upbeat report

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This was published 14 years ago

ANZ shares soar on upbeat report

By Danny John

ANZ Bank is on track to at least match its 2008 annual cash profits of $3.3 billion on the back of strong revenue growth and as a consequence of a slowdown in the rate of increase of its bad debts.

However, while the bank said today that the trend in its provisioning charge is slightly better than expected, it is anticipating that the second-half figure will still come in at around $1.72 billion for the year ending September 30.

That is 20 per cent higher than the first-half amount, which suppressed its interim profits to $1.4 billion.

Almost all of the increase in its bad debts over the last three months was accounted for by its New Zealand business where the domestic economy remains entrenched in a deep recession.

ANZ shares jumped 83 cents, or 4.1 per cent, to close at $21.29.

In a trading update that covers three-quarters of its 2009 financial year, the bank told investors this morning that there had been a three-fold increase in its sour loans charge over the level recorded in 2008. That will take bad debt provisioning in the division to $900 million.

By contrast, the position in Australia appears to have improved slightly with key economic indicators such as upward trends in mortgage arrears and credit card delinquencies having dropped back.

The bank’s chief, Mike Smith, said that the Australian and Asian economies were showing “early positive signs” of recovery and that though the effects of downturn were still playing out there were reasons for cautious optimism about the future.

The picture in New Zealand – where the bank derives a fifth of its profits – was different, however. Trading conditions remained difficult and the recovery was likely to be a lot slower, he added.

There was no reference in today’s statement to any further large commercial or institutional bad debt write-offs which plagued the bank in the first 18 months of the economic downturn.

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All told the level of impaired loans and lending facilities rose 7 per cent over the June quarter which is a significantly lower level than over the previous half from last October.

The bank has also seen a significant reversal in previous high charges for its exposure to the credit risk on a portfolio of derivatives which has fallen back nearly $540 million to just $125 million.

However, ANZ said that charge continues to be volatile even though there has been a reduction in global credit spreads as confidence in international debt markets returns.

And like its major banking rivals, ANZ is continuing to benefit from strong revenue growth after grabbing market share from smaller and less-well financed competitors.

Its global markets arm has seen a significant improvement which will bolster the performance of its previously-lagging institutional banking division whose bad debt charges during the downturn has held back group profitability.

Nonetheless, the division has seen a drop-off in lending growth, one of the key drivers of earnings, as major clients have borrowed less while reducing their own debt positions through huge equity capital raisings.

The group’s profits are being maintained by its retail and commercial businesses and its growing Asia Pacific arm which will benefit in coming years from the acquisitions of the Royal Bank of Scotland’s operations in the region.

Net lending in retail was up 9 per cent over the corresponding period whilst commercial rose 3 per cent. The increase in lending across the group was 3 per cent overall after institutional experienced a drop of 7 per cent.

As for profit growth, Asia Pacific is expected to contribute 60 per cent more than did it last year albeit that nearly three-quarters of that increase will have come from its first half performance.

The bank also indicated that whilst it was tracking well on the profit front, earnings per share will be well down on last year as a result of its massive equity issues this year from its $4.7 billion capital-raising exercises that will pay for acquisitions and its rising bad debts.

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