Call it bank swap and just change the name and figures. Wednesday it was the National Australia Bank telling us it had survived the global financial crisis and was rudely healthy; today it was the turn of the fellow Melbourne-based ANZ informing us that it, too, had survived.
And seeing the ANZ was more damaged than any of the Big Four with its self-inflicted lending disasters (Tricom, Opes Prime, anyone?), the ANZ’s final profit report for the 2009 year was impressive, thanks to a surge in interest income at a time when interest rates generally were cut by a record 4.25% by the Reserve Bank as the GFC swept up to our shores, then receded.
Net profit fell to $2.943 billion in the 12 months to September 30, from $3.319 billion in the previous year, but cash earnings, the industry’s preferred measure of profitability because it leaves out unrealised gains or losses related to asset values, jumped a very tasty 12% to $3.383 billion, from $3.029 billion in 2008.
Like the NAB, interest margins rose, revenue rose (even though costs surged). Dividends were chopped to save money, deposits rose. Net interest income soared 25% in the year, a year that was supposed to be tough. And that includes the bank paying more for deposits.
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This huge jump in interest income was driven by soaring interest margins (its core measure), which rose 0.28% over the year to 2.29 cents in the dollar from 2.01 cents. In other words, the ANZ managed to swallow more than one of the Reserve Bank’s rate cuts of 0.25%.
Excluding “cash flow on derivatives”, as the ANZ put it, the net interest margin was up a more sedate 0.16c to 2.24c. But the higher figure is the one where the profit comes from.
No wonder CEO Mike Smith was saying last week there was no need for another rate rise; he’s already got it.
In contrast, the NAB did it “tough”, lifting its net interest margin from 2.42c in the dollar to 2.59c at September 30.
The ANZ dropped its cost-to-income ratio to 45.7c in the dollar from 46.8c in 2008, a solid result and one that would have been even lower but for the costs of the reorganisation and the push into Asia.
It was as much a testimony to the strength of the Australian economy, bank regulation and support from the federal government and the Reserve Bank (via cash injections from repurchase agreements) and big interest rate cuts.
Unlike the previous recession when the strong business-oriented ANZ was almost undone by imprudent lending to a host of shonks and poorly run businesses (especially property), this time the ANZ has been able to ride out some imprudent lending activity.
The sharemarket has played a much bigger part in saving corporate Australia, even if many of the share issues and debt deals were driven by banks such as the ANZ becoming very nervous about the debt and cash flows of their clients.
And the $114 billion in ASX capital raisings in the 15 months to September, have helped (as they helped the NAB and its other peers, such as Westpac and the CBA) and allowing clients to recapitalise via equity rather than go to the wall and trigger huge losses, as happened in the 1990s recession.
The banks were a part of that recpaitalisation: the ANZ raised $5.7 billion in total to repair its damaged balance sheet and then a war chest to finance the return to Asia.
The issue by the ANZ and hundreds of other companies, large and small, is the one factor that sets this slowdown apart from the terrible recession of 18 years ago.
The ANZ had a big run up in bad debts: up 46% to $3 billion (to a high of $4.4 billion) — and one-off items such as provisions for tax and investment setbacks in New Zealand totalling $829 million and net earnings fell.
But underlying pre-tax profit rose 10% to $3.7 billion, thanks to a rebound in activity in the loss-making business banking group and strong strong growth in its retail bank.
Shareholders saw dividends hit; the ANZ flagged earlier this year that the full-year dividend could be cut by as much as 25% and that’s what happened with a final payment of 56 cents a share, down a quarter on last year.
Together with the half-year dividend of 46 cents a share, that will make a $1.02 for the whole of 2009.
The bank’s total of gross impaired loans now stands at $4.4 billion after the $3 billion jump in the past 12 months.
Like the NAB yesterday, the ANZ said it saw a slowing in the rate of increase of bad debts in the six months to September.
Group costs jumped 12%, thanks to the reorganisation after the big losses and the move into Asia. But revenue was up 12% to $13.610 billion.
ANZ’s Australian business performed well with net profit up 13% to $2.560 billion, customer deposits were up 16% to $153 billion.