ANZ posts biggest earnings drop since 2008, lags forecast

The logo of the ANZ Banking Group is displayed at a branch in central Sydney, Australia, on April 30, 2016.
The logo of the ANZ Banking Group is displayed at a branch in central Sydney, Australia, on April 30, 2016.PHOTO: REUTERS

SYDNEY (REUTERS, BLOOMBERG) - Australia's No 4 lender, ANZ Banking Group, on Tuesday (May 3) posted its biggest half-yearly decline in cash profit since 2008 and slashed dividends for the first time in seven years on rising corporate defaults triggered by a mining downturn.

The result marks the end of six years of record profits for ANZ and comes a day after No 3 lender Westpac Banking Corp missed earnings forecasts, confirming the negative trend for Australian banks as they battle the commodities downturn and tougher capital requirements.

The big earnings drop at ANZ, the only major Australian bank with a large presence in Asia, also comes in an election year when banking sector misconduct is a hot issue following a series of scandals including insurance fraud and rate rigging.

"This result reflects a challenging period for banking," ANZ CEO Shayne Elliott said. "We've had to make some decisions about how we see the environment in a subdued, lower-growth world. Part of that is getting the dividend on a sustainable, conservative ... basis."

ANZ, which is shrinking its low-returning Asian business, cut its institutional banking staff by 4,056 in the 12 months to March 31 and reduced loans by A$14 billion, the lender said. That freed up capital, ANZ said.

Cash profit for the first six months to March 31 slipped to A$2.78 billion (S$2.86 billion) compared with A$3.68 billion a year ago and analyst estimates of A$3.48 billion. ANZ slashed its interim dividend by 7 per cent to 80 cents.

Return on equity slipped to 9.7 per cent in the half from 14.7 per cent in the year-ago period.

While the headline numbers missed expectations, analysts said once one-offs were stripped out the result was not a surprise.

ANZ shares dropped nearly 4 per cent in early deals but gave up the losses to trade 2.4 per cent higher at A$24.29 each, as investors welcomed the bank's move to invest further in technology, cut dividends to protect capital and focus on growth at home. The broader market was up 0.5 per cent.

ANZ booked a more than doubling in bad debt charges to A$918 million, while adding it continued to see "pockets of weakness" associated with low commodity prices in the resources sector.

It also booked restructuring costs and writedowns of A$717 million, including a A$260 million impairment of its investment in Malaysia's AmBank, which is embroiled in a political scandal linked to state fund 1Malaysia Development Berhad.

"It's possible there might be further similar charges in the next 6-12 months," Morningstar analyst David Ellis said.

While bad debt charges are rising, Australia's major banks have small exposures to mining and mining-related services and their total loan losses are near record lows.

National Australia Bank reports first-half numbers on Thursday.