ANZ's record profit fails to impress
Asia now accounts for more than 20% of ANZ's revenue. Photo: Glenn Hunt
ANZ’s top line 6 per cent increase in full-year cash profit to a record $6.01 billion and the dividend hike isn’t enough to rally investors.
The bank’s chief Mike Smith points to ANZ now delivering “predictable” earnings and declares victory in his 2007 target of generating a large slice of ANZ’s business from Asia.
The latest bumper result, helped by tighter cost control, kicks off the big bank reporting season with National Australia Bank and Westpac to follow in coming weeks.
Commonwealth Bank, which operates on a different reporting cycle posted an 11 per cent increase in profit to $7.1 billion in August.
Even in the face of a subdued banking environment, ANZ’s key numbers came in line or slightly ahead of market expectations, including the 4 per cent increase in final dividend to 79 cents a share. This takes the full year payout to $1.45 a share, also up 4 per cent.
However, investors still sold off the bank's shares, which were down 36 cents, or 1.4 per cent, at $25.25 in early trade. Shares in ANZ have gained nearly 25 per cent this year.
ANZ’s second half profit of $3.04 billion was up 4 per cent from the same time a year ago. The bank has also made gains on the cost front, traditionally a weak spot for the bank.
The latest result sees so-called expense jaws turn positive where 5 per cent growth in revenue is outpacing 4 per cent cost growth.
Still, signs of funding stress continue with full year net interest margins crunched by 11 basis points. This figure alone should give a strong indication to ANZ’s mortgage customers that future interest rate rises are unlikely to be passed on in full. Even so there were signs of margins stabilising in the second half.
ANZ’s flagship Australian business continues to drive performance for the bank with earnings rebounding.
The 4 per cent boost to Australian banking profit to $2.49 billion over the year came about on market share gains and lower costs – including 650 job losses. The second half was a standout for the retail business with profit up 10 per cent on the first half.
Even so, provisions to cover bad debts were up 16 per cent in the second half – an early indication that momentum in the Australian economy may be slowing.
Elsewhere, earnings from the newly formed international and institutional banking business – which takes in Asia – was up a slightly more subdued 3 per cent on the year to $2.37 billion.
But earnings from the super-banking division headed by Alex Thursby went backwards 8 per cent on the second half - mostly on a subdued institutional banking environment.
New Zealand posted another solid performance with profit up 11 per cent to NZ$957 million ($759 million).
Incoming new global banking rules are starting to have an impact on profitability with ANZ’s return on equity, a key measure of shareholder returns, of 15.6 per cent was down from 16.2 per cent.
The lender recently said it was moving to a single brand across New Zealand, combining its flagship ANZ and The National Bank businesses.
The five-year anniversary of Mr Smith’s Asian ambitions is also worth coming under focus.
Back in 2007 on his appointment Mr Smith outlined his “super regional” banking strategy including a target of driving 20 per cent of “profit” from the Asian region by 2012.
Although in recent years, this strategy has slightly shifted towards a goal of driving 20 per cent of “revenue” from the region.
In today’s result, ANZ points out that 21 per cent of revenue is now from its Asian network, much of this from the greater China region.
Even so, revenue is one line of the profit and loss statement, and expenses – an area where ANZ has traditionally been vulnerable – is another.
But this is largely academic, as Mr Smith last year put in place new targets. This one is to have between 25 - 30 per cent of profit from Asian-linked businesses by 2017. On this count, ANZ says it is making good progress.
“The scale of transformation over the past five years is very significant,” Mr Smith said this morning.