Do stockmarket investors at the moment really know what they are doing? The question arises after the odd reaction to the results from the ANZ Bank.
The market punished ANZ yesterday, despite reporting its highest ever profit. The shares closed down $1.15, or 3.7% at $29.96, with a massive 23.25 million shares traded, worth $670 million.
It was a real sell-off which, on the face of it, was an odd reaction to some solid looking figures and the market might be accused of over reacting and not taking heed of previous qualified guidance on an expected rise in impaired loan provisions. But the market saw a problem in a sharp rise in second half bad debt provisions, something that was signalled back at the interim announcement and at the yearly result a year ago.
The rise in provisions resulted in the bank missing second half analysts’ forecasts with a 7% rise to $1.988 billion on a cash basis. Analysts had been looking for around $2.008 billion or a bit more. The reason was a 39% rise in the ANZ’s provisions for credit impaired loans, to $567 million.
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Though the figure was news, the warning on the second half wasn’t. Here’s what the bank said on 26 April, when the interim profit was announced:
For the 2007 year, ANZ’s revenue and expenses are expected to be in line with previous guidance of 7%-10% revenue growth and 5%-7% cost growth. While the credit environment is benign, we expect provisions to be significantly higher in the second half, with the first half unusually low due to recoveries.
Here’s what the bank said yesterday:
While credit quality still remains sound, credit costs rose by 39%, in line with our earlier guidance to the market.
The warning about 2007 was first flagged back in October of last year when the 2006 result was announced. And yes, that was repeated for 2008 yesterday:
The credit environment should remain benign, although provision growth is expected to exceed lending growth, as 2008 will not benefit from the same level of recoveries as 2007.
So another rise in provisions in the year ahead and a sell-off every now and then because investors ignore what they have already been told. So was it really a problem?
Here’s Goldman Sachs JBWere’s take on it this morning:
ANZ net impaired asset grew by 18.9% in FY07 to $490m. Whilst this growth looks ominous, it is in line with asset growth producing a net impaired assets to total loans of 0.17% which increased by only 0.01% on FY06.
Increasing growth in +90 day accruals to $561m (up 12.4% from FY06) however, +90 accruals to gross loans remain in line with FY06 at 0.19%. Non performing loans still flow predominately from non-consumer financing areas. However, growth in NPLS in FY07 came from consumer finance products. In particular ANZ noted continued issues in the NSW portfolio.
So not a problem really. The increased provisions have risen from a low level in 2006. Nothing more.