Suncorp Metway baffled the market yesterday and paid for it with a bout of selling in an overall skittish market.
The Brisbane-based insurer and bank revealed a rise in first half profit, and then a sharp 25% cut in interim dividend.
The shares fell more than 6% to close at $8.62, down 59c on the day.
The cutting of the dividend to 15 cents a share from 20 cents a year earlier was the second consecutive reduction.
What spooked investors was this comment from chairman John Story:
"By retaining higher levels of capital, we will be in the strongest possible position to deal with any unanticipated short term issues that may present over the next six months."
Investors wondered what the problem might be. No wonder the shares fell 6% yesterday.
Net profit rose to $364 million from $258 million in the first half of 2008-09.
That was around the middle of analyst forecasts and came after a very strong rebound by its insurance brands
The company said that its general insurance business, where pre-tax profit was $491 million, up 94%, with net profit after tax up 89% to $347.
There was an absence of violent and costly weather events such as cyclones, storms and floods at the level the company has endured in the past couple of years.
The rising stockmarket and interest rates saw returns rise from its investments.
As a result the company said "The result featured the positive impacts of a less volatile claims environment and improved returns from investment portfolios.
"The insurance trading result was $401 million or 12.8% of net earned premium.
"Investment income on insurance funds was $260 million and investment income on the shareholder funds was $100 million."
In contrast the result from the Metway banking was poor.
Suncorp said, "Banking NPAT was $4 million with the core Bank making a pre-tax profit of $224 million and the non-core Bank making a pre-tax loss of $211 million.
"The core Bank’s focus on retail deposit gathering was successful, with the ratio of retail deposits to lending increasing to the top end of the target 60 – 70% range.
"Credit quality across the $37 billion core Bank portfolio remained sound, reflecting its high security, low risk nature.
"Net interest margin in the core Bank was 1.76% for the half-year to 31 December 2009, an increase of four basis points over the margin for the fourth quarter of the 2009 financial year."
The company said the "the non-core Bank", which is all the billions of assets unwanted and or non-performing, saw an improvement.
"Run-off of the non-core portfolio continued slightly ahead of expectations, reducing by $1.9 billion over the half year to $15.6 billion.
"Non-core impairment losses for the half year were $272 million, approximately 317 basis points of non-core gross loans, advances and other receivables on an annualised basis, which was down from 456 basis points on an annualised basis for the quarter ended 30 June 2009," the company said.
The company revealed that it was reducing its insurance exposure.
CEO, Patrick Snowball said in the statement yesterday that the group intends to sell its participation in the joint venture insurance arms of the Royal Automobile Club of Queensland (RACQ) and the Royal Automobile Association of South Australia (RAA) back to the respective motoring clubs.
He said "While the joint ventures have proven to be good investments for Suncorp, the next phase of our development requires a full time focus on our core operations."
Suncorp will exit the RACQI and RAAI joint ventures in accordance with the shareholder agreements that are in place. It is targeting completion of both transactions prior to the presentation of its full year result in August 2010.
