The headline figures looked good, but the market didn’t like the interim results from the ANZ yesterday: it seems there were too many unanswered queries about the quality of the earnings.
As well some realistic comments from CEO Mike Smith about the outlook for the economy and current trading conditions also worried a few in the market, judging by the way the shares went.
Perhaps the reaction might have been different had the ANZ reported on a day when the market was up, instead of softening on worries about the impact of the dollar and earnings downgrades, of which there were a few yesterday and Monday.
ANZ shares fell 2%, or 50c, to $23.80 on a day when the wider market was off 0.8%.
Not even a sharp, 23% increase in interim dividend (which had been widely expected) could boost interest in the shares.
The proposed interim dividend of 64c per share is fully franked and is up 12c on the 52c paid in the same period of 2010.
The headline "statutory" profit rose 38%, a record $2.664 billion for the six months to March 31 from $1.925 billion a year earlier.
Underlying profit increased 23% to $2.818 billion.
Bad debts fell 27% to $703 million, from $963 million in the first half of 2010.
This compared with $730 million in the previous half.
The stronger Australian dollar knocked around 2% off earnings, according to the bank.
That big boost in lending rates last November, above and beyond the 0.25% from the RBA, also helped.
So Group net interest margins, excluding global markets, rose three basis points to 2.81%. Including global markets, margins fell three basis points to 2.47%.
The ANZ sets up results or updates from the three other big banks over the next week.
Westpac reports this morning and the National Australia Bank tomorrow, while the Commonwealth Bank has a third-quarter trading update a week today.
Analysts didn’t like the way the 23% rise in underlying profit benefited from the treatment of $75 million of costs from New Zealand technology integration.
They were taken below the line, after tax and a one-off items.
Some analysts say they are a normal cost of business and should have been taken above the line.
It goes some way to explaining yesterday’s share price fall.
ANZ beat consensus estimates for its underlying earnings, but its performance was lower than the market forecast on statutory profit, interim dividend and return on equity.
"Having put a number of building blocks in place, including through acquisition and the investments made in building capability, we believe there is further upside in the business," ANZ chief executive Mike Smith said in a statement.
"There is also the opportunity across the bank to continue developing stronger customer propositions, driving productivity gains from our hubs and integrating the super regional strategy into all our businesses.
"This gives us confidence that we are well positioned going into the second half."
Customer deposits, which grew by 4%, now represent 60% of funding, ANZ said.
Short-term wholesale debt made up 11% of funding.
Thanks to the fall in bad debts, the bank’s return on equity rose to 16.7% (which is very good), from 12.2% in the March half of 2010.
ANZ wants to get 25% to 30% of its profit from Asia by 2017, up from 14%.
That desire was clearly evident in yesterday’s report.
For example, there was a 42% rise in the head count in its Asian businesses and 23% in its global institutional operation. Costs rose 23% in Asia Pacific, Europe and America. ANZ’s Asian business claims to have won 600 new institutional clients over the past year, with 23% growth in lending and 28% growth in deposits.
The ANZ said it wants to raise around $20 billion to $25 billion, about half that of the big retail banks Westpac and CBA. The growth in Asian loans is being funded by Asian deposits.
But in translation, the stronger Australian dollar is hurting the bank.
All that’s impressive, but supporting that is the strong performance (thanks to those lower bad debts) in Australian retail.
The bank’s Australian region saw a 15% rise in underlying profit (to $2 billion).
That was due to the 26% fall in the impairment charge. Pre-impairments, profit improved only 3% to $3.4 billion.
The retail arm’s earnings rose 7% to $1.2 billion but this was offset by a weak institutional banking performance (down 9% to $1.1 billion).
Without those Australian earnings Mr Smith’s Asian ambitions would be just that, ambitions unable to be realised.
