April 23 is when the ANZ produces its interim profit announcement.
After this week’s pre-emptive strike at its bad debt provisions, and a bit of rainy day provisioning for the second half, the bank will be looking to put a smile on investor faces.
All the bad news about bad debts that might have overshadowed the earnings announcement will be out in the market and factored into the share price.
It will be a case of ‘look at the results and the operations’, not the provisioning.
So in that sense it was good tactics to separate the two announcements, cop a pounding and the ire of analysts and others in the market this week, and hopefully set things up for a rebound from the result onwards.
The share price took a pounding, off a couple of dollars, but then $975 million in provisions does generate some publicity.
On top of that there’s been the daily flow of bad news and poor publicity about Opes Prime.
It’s a disaster: the ANZ may or may not have breached the Corporations and Takeovers Acts by non-disclosure of its plethora of 5% positions in various companies.
That’s not big financially (even allowing for possible class actions), but the danger to the ANZ is reputational: it is being shown to be accident prone in lending to the sharemarket, with poor oversight and inadequate controls in place in its institutional banking business.
Remember how the NAB’s affairs were controlled by the key regulator, APRA, after the forex loans scandal four years ago when around $360 million in losses were concealed?
We don’t know yet just what happened at the ANZ, but it has had problem with Tricom in Sydney which it seems to have spotted and forced the client to change. Why it didn’t spot the problem at Opes is therefore bemusing to say the least.
Broking analysts aren’t focused on the impact of Opes Prime yet because there are no numbers to work with. After the interim results, it might be a different story.
Goldman Sachs JBWere banking analysts said:
Whilst it appears that ANZ’s increase in the provision was more precautionary (almost sand bagging) than a reflection of current bad debt trends, we believe that in the current uncertain conditions, the market is likely to remain cautious towards ANZ in the near term.
• Whilst it is tempting to paint the rest of the sector with the same brush, some caution should be taken when doing this, for the following reason:
• Based on what we have seen to date ANZ credit quality does appear to be a bottom end of the peers;
• The other banks confirmed that they have not seen a deterioration or signs of a deterioration in their corporate book; and
• ANZ has a track record of raising these type of general provisions (the oil shock provision in 2006) when the outlook becomes uncertain and then writing it back through the P&L.
• While there can be no doubt that bad debt expenses will rise across the banking sector, we believe that this is largely factored into our forecasts (excluding any further large one offs).
• The biggest risk to our forecasts at this stage is a hard economic landing in Australia which would see our provisioning forecasts increase materially.
UBS banking analysts said:
We believe today’s downgrade was substantially pre-emptive (with small Opes Prime impact) and not unexpected given a new CEO. ANZ’s Balance Sheet now looks stronger than peers. We have left FY09E forecasts unchanged, given 35basis points of Bad and Doubtful Debt charges (Long Term ave 28bp).
Despite another disappointing announcement, we take some credence from ANZ being the most upfront of the majors over its exposures. We see this as prudent, and would not be surprised to see other banks follow with similar announcements.
And Merrill Lynch banking analysts said this week:
In a pre-emptive move to worsening trends in its Institutional portfolio ANZ raised its segment collective provision charge to $350m, reflecting further deterioration in commercial property and broking clients and an additional allowance for flow-on effects of the continuing crisis. We have adjusted FY08F -5% and FY09F -2%.
Perennial disappointer the Institutional division (37% of group) will now contribute 90% of the increase in bad debts this year. This adds to three consecutive poor half results from this unit, a management change, write-downs on non-core bond arbitrage activity and the equal highest volume of problem loans in the sector.
The rest of franchise ok for now, but the risks are increasing.
Comments about core revenue trends, volumes and the systemic state of credit quality in the portfolio were again encouraging. Despite persistently high cost growth we still expect about 12% pre-provision earnings growth.
Looking further out there is a risk the commercial franchise slips further.
Additional segments within Institutional could be downsized and there is a strong argument the recent reputational fall for ANZ will hurt the bank in the small business banking community. Given this, Asian aspirations are likely to become more important to the group.”
And that stepped Asian interest was seen in news from Hong Kong that the ANZ made the short list to negotiate to buy a privately owned local bank which is on the market.
Bloomberg and other newsagencies reported that The ANZ, the Industrial & Commercial Bank of China and the Bank of Communications (China) had made the short list to bid for Hong Kong’s Wing Lung Bank Ltd.,
The Wu family is seeking to sell a combined 53% stake in the bank. Bloomberg says the three banks have won the right to due diligence before making an
