ANZ Rises to 7-Month High as Bank Reports Capital, Asset Growth

ANZ 3Q Cash Profit Down 3%
  • Nine-month cash profit drops 3% to A$5.2 billion, lender says
  • ANZ has had costs associated with shrinking Asian business

Australia & New Zealand Banking Group Ltd. shares rose to a seven-month high after the lender said it had boosted capital and reduced low-returning assets, while the bank’s chief executive officer indicated expenses for bad debts will remain steady.

The stock jumped as much as 3.7 percent in Sydney even after Melbourne-based ANZ said adjusted proforma unaudited cash profit, which excludes one-time items, fell 3 percent to A$5.2 billion ($4 billion) in the nine months to June 30 from a year earlier, according to a stock exchange filing Tuesday. Australian lenders don’t provide quarterly earnings and are only required to present half-year and full-year results.

ANZ CEO Shayne Elliott
ANZ CEO Shayne Elliott
Photographer: Mark Dadswell/Bloomberg

The statement offers an indication that ANZ’s plans to restructure its operations and shrink its Asian business are starting to bear fruit. Australia’s most Asia-focused lender is reducing loans and capital employed in a region that has dragged down return on equity, a measure of how efficiently it deploys shareholder funds, and forced it to cut dividends for the first time since 2009.

“Bad-debt charges are still trending higher, which is a challenge for ANZ as it progresses through the restructure,” T.S. Lim, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “While it may take a couple of years for the bank to steady the ship, stable margins, strong capital generation and a performing domestic retail business will lend support.” Lim has a hold rating on the stock.

ANZ shares jumped 3.1 percent to A$26.50, the highest intraday price since Jan. 7, as of 11:58 a.m. local time. That pared the drop this year to 5.2 percent, the least among the country’s four largest lenders. The benchmark S&P/ASX 200 Index has risen 4.7 percent this year.

Soured-Loans Provisions

Total provisions charges rose to A$1.4 billion in first nine months of the lender’s fiscal year, up from A$877 million a year earlier, it said. Charges for soured loans have increased from low levels to about the long-term average, Chief Executive Officer Shayne Elliott said in an interview on the lender’s website.

Credit quality hasn’t gotten any better nor any worse “and we think that probably feels about right and we’d expect the same to continue for a period of time,” he said, referring to expenses for bad debts.

ANZ has reduced its risk-weighted assets in its institutional business by A$15 billion, which contributed a 5 basis point increase in divisional margins excluding global markets, it said in the statement. Group net interest margin, a measure of lending profitability, was “stable,” assisted by a reduction in low-margin institutional loans, it said. The retail business, which includes mortgages, credit cards and other personal loans, had “modest” asset growth, the lender said.

Asia Commitment

ANZ plans to trim the capital allocated to its institutional-lending division, which includes a majority of its Asian operations, to 40 percent of the total from half, and redeploy it in its retail and commercial business in Australia and New Zealand, Elliott said in May.

The lender boosted its common equity Tier 1 capital ratio, a measure of its ability to absorb future losses, by 0.44 percentage point in the third quarter, taking the level to 9.7 percent by June.

“In terms of Asia, it’s absolutely not about getting out of Asia,” Elliott said Tuesday. “It’s really just about finding those segments and areas that are doing well. There’s going to be a little bit of balance sheet shrinkage in Asia. A lot of that is to do with the fact that commodity prices are down and therefore the value of what we are financing has come down naturally.”

ANZ kicks off earnings reports for the largest Australian lenders. Commonwealth Bank of Australia, which has a June financial year compared to September for its main competitors, reports full-year profit Wednesday. National Australia Bank Ltd. follows next week, while Westpac Banking Corp. doesn’t hand out quarterly earnings.

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