Fresh after announcing a 5% fall in cash earnings and an unchanged final and full year dividend, ANZ says it has abandoned attempts to float its unwanted NZ finance arm, UDC Finance.
The decision also came as the bank’s NZ banking arm revealed record bet profits of $NZ1.99 billion, or an estimated 40% of the profits of the entire Kiwi banking sector. ANZ New Zealand’s revenue increased 3% to $NZ4.18 billion.
The parent, ANZ Banking Group said its full-year cash profit from continuing operations fell 5% to $6.49 billion, in a result made messy by the bank getting rid of staff, businesses (as it simplifies operations) and starts paying customer remediation in the wake of the royal commission.
Chief executive Shayne Elliott said retail banking faced “strong headwinds with housing growth slowing and borrowing capacity reducing”. A sharp fall in impaired loans and bad debt provisions also boosted earnings.
ANZ shares rose 1% to $25.93 yesterday after the result. The shares rose as high as $26.15 in early trading faded and then ended with a late rush when investors realised that underlying all the mess was a solid result.
The UDC announcement ends two years of trying to offload the company – first it was solid to Chinese group, HNA in early 2017 for$NZ660 million, but that deal fell apart as HNA first hit a series of liquidity crises that has seen it abandon similar deals (such as buying the cold storage business of Automotive Holdings in Australia for $A400 million) and then sell a string of property and corporate assets to try and stave off collapse.
Many of these decisions to abandon deals and sell assets was done under pressure from the Chinese government to try and prevent HNA from collapsing in what would be a multi-billion dollar failure that would embarrass the government and leader President XI.
Then late last year New Zealand’s competition and investment regulator said it would not approve the deal because it did not know who owned HNA (a point that escaped Australian regulators when it bought into Australian assets, such as a stake in Virgin Australia).
In a statement in March of this year ANZ said it would now explore the chances of a float of UDC.
For the year to December 2017, UDC earned a net profit of $NZ61.6 million from net loans and advances of $NZ2.9 billion.
ANZ’s New Zealand chief executive David Hisco said in that statement the bank had been considering strategic options for UDC for some time as part of its goal to simplify the bank and improve capital efficiency.
“This will include exploring whether, subject to market conditions, an IPO would be in the interests of UDC’s staff and customers and ANZ shareholders.
“The range of strategic options we have for UDC, including approaches we have received about the business and the option of retaining it, will take a number of months to examine before any decision is made. In the meantime, it will continue to be business as usual for UDC.”
Yesterday morning ANZ announced that it will not be pursuing an initial public offering (IPO) of UDC Finance, following the completion of a strategic review of the business.
UDC is a wholly-owned subsidiary of ANZ Bank New Zealand and is the leading asset finance company funding plant equipment, vehicles and machinery in New Zealand.
ANZ announced in March 2018 it was exploring a range of options for UDC’s future, including a possible initial public offering of ordinary shares.
ANZ New Zealand Chief Executive Officer David Hisco said in yesterdays statement: “UDC has continued to perform strongly while we have been looking at our strategic options. While we may still consider a sale in the future, we have decided to put a hold on all sale discussions for now and focus on continuing to grow the business.”
ANZ said it was two thirds the way through its $3 billion buyback with around $1.9 billion so far spent and $1.1 billion to go. the shares bought back so far accounted for 2% of the bank’s issued capital 9which should give a nice boost to earnings per share this year (around 3% all up).
The ANZ also revealed it had cut its interest-only loans by nearly two-fifths over the past 18 months while keeping investor lending largely stable.
The bank – which is the country’s third-largest home lender said it had cut interest-only loans to 22% of its home loan mix in the September quarter from 36% in the March quarter last year while loans to investors – who likely account for the vast majority of interest-only loans – slipped to 32% from 34%.
Reserve Bank credit data for September yesterday showed that investor lending had slowed to just 1.4% in the year to September (and 0.1% month on month), which is the lowest on record.
But lending to owner-occupiers rose 7.3% year on year which while down from 8.1% in April, shows that demand for home loans remains solid and there is plenty of business about for the banks and other lenders.
Total home lending was up 5.2% in the year to September, down from 6.6% a year earlier with the fall driven by the slowdown in investor lending.
Certainly talk of a credit squeeze or drought is nonsense based on those figures. Business credit also rose 4.4%, which was the highest annual rate since August last year.
Lending also helped the ANZ in another way – as noted in the first report yesterday there was a sharp fall of more than $1 billion worth of impaired loans in the year to September. That saw provisions for bad debts fall to just 0.12% of gross loans and acceptances was down from 0.21% last year – which was already a very low reading.
Some of that was due to a fall in dud loans in Austraia, while much of the drop can be attributed to the sale of banking operations in Asia and clearing those bad and impaired debts from its books in the process. A similar wfall will be much harder this year.
A portion of this can be explained by the sale of ANZ’s retail business in Asia, together with the run-down of its mid-market commercial business in the same region.
The fall in impaired loans boosted operating profit by $511 million for the 2018 financial year. Without it, the cash profit would have been down 8% instead of 5%.
