ANZ Reports Worse Than Expected First Half Profits

Post by Sharat on April 29, 2009 · Under Business News, Company News, Equities, banking, investments · Comment

Australian banking major, Australia & New Zealand Banking Corporation (ANZ) The fourth largest bank in Australia reported first half earnings on Wednesday and failed to meet the market expectation, reporting instead a 43 per cent decline in first half profits on the back of its provisions of bad and doubtful debt having doubled.

ANZ also slashed its interim dividend by 26 per cent, which came as no surprise and was in line with previous guidance the lender had given. ANZ warned already skittish investors that future provisions were likely to increase that they would only worsen in the second half.

ANZ chief Mike Smith in his statement said “The expected slowdown in Australia and New Zealand is now playing out with the outlook for provisions in the second half likely to be somewhat more difficult than the first half. And we expect that situation to continue through to early 2010,”

Though Australian banks have not had to write-down many investments made in hard to value risky assets which were linked to US real estate, they do face exposure to an economy which has slowed down if not in recession, and rising unemployment as a result.

ANZ said first-half cash profit was A$954 million), down from A$1.674 billion a year earlier, and well below six analysts’ average forecast of A$1.239 billion. Provisions for bad debts doubled to A$1.435 billion in the six months ended March 31, from A$726 million a year earlier.

“An uptick in provision levels in March, driven largely by stress being experienced by middle-market customers,” means the bank expects full-year provision levels will be “somewhat higher” than anticipated at a trading update in February, ANZ said in today’s statement.

ANZ’s international operations in Asia Pacific, Europe and America recorded earnings of $401 million, almost double the $205 million recorded a year ago, boosted by strong growth as the bank employed more staff offshore.

Mr. Smith said the lender remained on track with its Asian expansion strategy which has a goal of obtaining 20 per cent of its earnings internationally by 2012.

Mr. Smith declined to comment on speculation the bank was in talks to buy RBS’s Asian commercial and retail banking assets, but acknowledged those buying those assets would be in line with the group’s strategy. However, he stressed that pricing was always an issue. Some analysts believe that ANZ may not have deep enough pockets to secure the assets.

More broadly, Mr. Smith said asset pricing in Asia from a buyer’s perspective was “improving”.

ANZ stock which has rallied 33 percent since a February low declined 78 cents to A$15.85 at 11:09 a.m. in Sydney.

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