It was a case of too much upbeat commentary from the ANZ in its December quarter update and not enough about whether the bank actually earned a profit in the quarter and, if so, how much?
The bank explained in the update that it had sped up its mortgage processing and improved its approvals process (which limited its market share and lending gains in 2020-21) to try and repair problems that emerged in the year to September and for which it drew the ire of analysts and big shareholders.
But the ASX release on Monday had one major gap (unlike Westpac last week) and that was there was no unaudited cash earnings figure on the data. A novel approach if you are updating the market on how the bank performed in the December quarter
(Westpac’s unaudited cash profit was up 74% to $1.58 billion, mostly due to a series of one-offs; without those the rise was a weak 1%.)
A year ago, the ANZ’s first quarter trading update contained a cash earnings figure (including one-offs) of $1.2 billion.
From the weak commentary the absence of a quarterly earnings figures left the impression the real story was a sharp slide in cash earnings for the three months.
Given the absence of a figure this time around, investors thought the worst and sent ANZ shares down 5% at one stage on Monday and close to lows for the past year in a negative reaction to the ASX filing.
The shares rebounded over the rest of the session to close down 1.9% at $26.57.
Westpac saw a compression in its net interest margin and what did standout from the ANZ’s report was something similar.
ANZ’s update was weaker than expected by brokers, and some analysts said the market was likely to downgrade its estimates for ANZ’s half-year profits after comments like these from the bank.
“Group Net Interest Margin was down 8bps for the quarter with underlying NIM down 5bps, largely driven by a lower exit rate at the full year (versus the second half average) and a continuation of the structural headwinds impacting the sector.
“The impact of rising rates, predominantly in New Zealand, and recent deposit pricing changes are expected to moderate these ongoing headwinds in the second quarter.
Which equates to a warning of lower margins and a first-half profit hit from “softer” performance in its markets business.
While it reversed $44 million in bad debt provisions during the quarter, changes to provide Australian retail and commercial customers lower fee options would reduce annual operating income by about $140 million.
“Given the uncertain impacts of reduced activity on asset quality going forward, we expect that the bad debt benefit will likely be looked through and investors will focus on the softer than expected revenue print,” Citi analysts said in a note after the update was issued.
ANZ also said it would consider expanding its $1.5 billion buyback, as it reported a common equity tier 1 (CET1) ratio of 11.6%.
That was a probable, not a possible.
Some shareholders wouldn’t mind the bank throwing some capital at getting its mortgage business rightsized and doing better and of course coming clean on earnings.
