The ANZ has become the first of the big four banks to bite the bullet and cut dividends to shareholders.
In a trading update yesterday it revealed a 25% cut and revealed more bad debt provisioning in moves that seem designed as much for the ratings agencies as for shareholders.
That will be being followed by the other three: the National, the Commonwealth and Westpac, all of whom have not been able to give categorical assurances in the past month that their shareholder payouts would not be cut.
The regulator, APRA, supported dividend cuts via a speech by chairman, Dr John Laker in Sydney yesterday.
If there’s anything certain in Australian banking, the big four play ‘follow the leader’ on rate rises and rate cuts. Cutting dividends shouldn’t be any harder than either of those moves, once one of the four has done it.
The ANZ joins the first bank to hack into its dividend in Suncorp Metway (which ANZ tried to buy last year) which dropped its payment from 54c a share to 20c.
That will see the 2008 pay-out of $1.36 a share trimmed by around 34c by the time ANZ reports its full year results at the end of October. (Source)
Such a move will save the bank around $500 million, a handy sum when the ratings agencies come calling for a re-look at the business, as Moody’s said last week it would doing.
A cut in dividend will go a long way to assuring Moody’s that the bank can keep its AA rating, or will improve its chances.
The first sign of the extent of the dividend cut will come when the bank releases its first half year results for first half to March 31 on April 29.
The market liked the move, the shares rising 55c to $13.05.
On top of the dividend cut, the ANZ said yesterday that it will lift its loss provisions.
Earnings in the four months ended January fell 11% to about $1.2 billion from the same period of the previous year.
The bank took a charge of $370 million for credit market losses in the period and set aside as much as $2.5 billion for bad loans in its full year.
“While Australia is better positioned than most other countries and has been remarkably resilient so far, it has not given us immunity, nor will it this year,” Chief Executive Officer Mike Smith said in the update.
“In this environment, our underlying business is travelling well. We are continuing to deal with legacy issues, managing the impact of the financial crisis and implementing our super regional strategy.
"The positive results, particularly from Asia Pacific and progress in turning around Institutional, demonstrate we are addressing current critical issues while not neglecting our longer term positioning.
“Importantly, we have strengthened our balance sheet through increased provisioning, significantly increased liquid assets, improved our tier one capital position; recognised the need to move to a more appropriate dividend payout ratio for the current conditions and strengthened our management bench in particular by increasing the number of senior executives with deep banking experience,” Mr Smith said in the statement to the ASX.
ANZ Bank’s Tier 1 ratio at the end of January was 8.4%, the bank said today. Earnings in the four months ended January excluding loss provisions rose 18% from a year earlier, the bank said. First-half profit will be “much weaker” than for the full year, it said.
"In New Zealand, volume growth has been flat and margins under pressure due to higher wholesale funding costs, competition for deposits and break costs on mortgages as customers take advantage of lower interest rates.
"Costs are being well controlled but increased credit provisions will drive a reduction in earnings in New Zealand in 2009."
Earlier this month, ANZ forecast first-half profit would drop more than 15% from a year earlier as credit provisions rise.
The bank’s net income fell 25% to $1.36 billion in the last half of 2008 to September 30 as it more than tripled bad-loan provisions and set aside $721 million for possible losses from derivatives trades.
The dividend cut was flagged in the trading update for the first four months of its current financial year in which the bank indicated that while its cash earnings – the industry’s preferred measure of profit – were up 18% on the same period last year; further impairment charges would see the net figure dive by 11% to $1.2 billion.
That figure includes another $370 million set aside for a mark-to-market charge on trades on volatile credit markets.
If those are excluded from the bank’s performance in the four months to January, the bank said its earnings for period compared to 2008 would be down by 4%.
That was despite a 16% rise in income growth as ANZ benefited from a "flight to quality” as customers moved their money to what they regard are "safer banks” while the fall in the Australian dollar helped boost revenue in its global markets operation.
And while profit before rising bad debts was 14% ahead, the domestic division will report only flat earnings at the first half as a direct consequence of higher bad debt charges.
