Party's Over At Anz
The Age
Friday October 26, 2007
ANZ is enticing investors to hand back their dividends to pay for its Asian expansion, but fears about potential long-term effects of the plan and a disappointing profit gutted the bank's shares.
ANZ shares closed down $1.15 - 3.7 per cent - at $29.96 after the bank said it had posted second-half net profit of $2.1 billion to bring full-year net profit to a record $4.2 billion. The fall was suffered while the bank's peers in the S&P/ASX 200 financials index gained 0.24 per cent.ANZ shareholders on the bank's registry at 7pm on November 14 will receive a final dividend payment of 74? a share, bringing dividend payments for the full year to $1.38 a share.Stripping out one-off events, including the sale of Fleetpartners and the consolidation of E*Trade, cash profit for the second half was $1.99 billion, below some analysts' forecasts.Earnings per share (EPS) in the second half were also a disappointment, both to the bank and investors, at 8.1 per cent. Chief financial officer Peter Marriott said the strong Australian dollar cut about 1.6 percentage points from cash EPS.In a note to clients, Citigroup analyst Craig Williams said the bank had delivered "a disappointing result"."With 8 per cent expense growth in (the second half), and 36 per cent growth in bad debts, investors may be excused for thinking new CEO Mike Smith is seeking to load up the bad news in this result," Mr Williams said.Over the full year, the bank wrote off bad debts of $584 million - 39 per cent more than last year's $421 million.But the biggest surprises from the day were a 1.5 per cent discount for shareholders who chose to reinvest their dividends and a deal with UBS to guarantee whatever dividends were not reinvested.The deal amounts to a $1 billion share issue, with the money probably intended for investment in Asia.Mr Smith said the plan would cut 0.4 percentage points from next year's EPS.JPMorgan analyst Brian Johnson worried that shareholders would be asked to pay for continuing investments in Asia even as they waited for those Asian investments the bank has already made to deliver earnings.Mr Marriott said no further underwriting programs were in place, but the bank would continue to look for acquisitions."We will continue to invest in this part of the business for as long as we can see it being positive for shareholder value and as long as we see the region as having possibilities," Mr Marriott said.ANZ has been the most aggressive Australian bank in the hunt for a role in Asia's growth.Cost growth outpaced revenue growth by 2 per cent in the second half. For the full year, the gap between the rate of revenue growth and the rate of cost growth - closed from 2.3 percentage points to 1.9 percentage points.ANZ is the first bank to report its profits. In coming weeks National Australia Bank, Westpac and St George will follow. The global squeeze on credit markets contributed to a 39 per cent increase in the cost of credit.Net interest margin, which gauges the money from loans that goes to profit and is a common casualty when competitors cut prices, shrank by 0.12 percentage points to 2.19 per cent. Mr Williams calculated that if the credit market continues under current stress it could cost ANZ $63 million from next year's net profit.
© 2007 The Age