Shares in the Bendigo and Adelaide Bank ended with a solid 6% gain yesterday after it confirmed the merger was working.
Bendigo Bank merged with the Adelaide Bank late last year, just as the credit crunch was breaking. The merger was sparked by a rejected offer from the Bank of Queensland.
Instead the staid Bendigo merged with Adelaide Bank in a $1.6 billion deal which created the country’s 7th largest bank.
That was probably great timing for the latter as the credit crunch flattened Adelaide’s main areas of growth in third party mortgages and margin lending and drove up the cost of wholesale funding which had been Adelaide Bank’s main source of funding.
The merger took a few hits from nervy investors, especially as it became clear that margin lending had hurt the likes of the bigger ANZ, and that the wholesale markets had shutdown, as had the securitisation markets which hurt non-bank home lenders, of which Adelaide was a significant player.
The new bank said yesterday that full-year net profit rose 40% to $170.5 million in the year to June 30.
In the previous fiscal year, Bendigo reported a net profit of $121.8 million, prior to the merger.
Bendigo will pay a final dividend of 37c, which takes the full dividend paid for the year to 65c, up 12.1%.
The result included a seven month contribution from Adelaide Bank from last December.
The bank’s cash earnings were up 70.4% to $201.9 million in line with analysts’ forecasts.
But the bank declined to set a specific guidance for the current year despite beating its own earnings per share (EPS) target for 2008.
It lifted its EPS by 13% to 93.7c, above guidance given earlier this year of a 12.0% improvement.
Managing director Rob Hunt said in a statement that while the bank had not provided specific guidance for the current year, it did expect to continue to grow shareholder value "even if the current economic conditions continued".
"We believe the business model employed by Bendigo and Adelaide Bank is strong and unique," he said.
"Our non-negotiable focus on customers, communities and partners and a strategic focus on growth at profitable prices means we are able to create value throughout the business cycle."
Bendigo and Adelaide’s cost to income ratio improved over the period from 64.6c in the dollar to 59.6c.
The bank attributed the improvement to a combination of Adelaide Bank’s lower cost wholesale model, synergies achieved through the merger integration process, and a focused effort to manage costs appropriately in the current business environment.
The bank said its asset quality remained sound, with gross impaired loans representing just 0.09% of total assets down from 0.11% in the prior corresponding period.
Because of the credit crunch, the bank said it experienced an increase in the cost of funds during the reporting period.
But it had also been able to lift its retail funding, with more than 75% of all on-balance sheet funding coming from this source as at end July 2008.
The lender said it was strongly capitalised with a total capital position of 10.43% and a tier 1 ratio of 7.52%.
"We remain predominantly funded by retail deposits, our credit quality remains sound, and our prospects for growth remain solid," Mr Hunt said.
"The Bendigo Bank retail network continues to expand by around 25 branches each year and with a high proportion of branches yet to reach maturity, future income growth is to some extent locked in.
"We are also taking the opportunity afforded by the current disruption to wholesale markets to reshape those businesses for growth, and improved margins, once funding begins to flow again.
"The current market conditions demonstrate the strength and flexibility of the merged bank.
"While current conditions have challenged our wholesale businesses, we have been able to leverage the strength of our retail franchise to sustain our momentum.
"Equally, as conditions improve for our wholesale businesses, they will be well-placed to ride the upswing."
The bank’s net interest margin declined slightly over the period from 1.69c in the dollar to 1.64c.
