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ANZ Bank Posts 10% Profit Gain

WSJ,

1 May, 2012

SYDNEY—Australia and New Zealand Bank ANZ.AU -1.08% reported Wednesday a 10% rise in net profit to 2.92 billion Australian dollars (US$3.02 billion) for the first half of 2012, driven by stronger results from international markets amid slowing growth in Australia.

The result was up from the A$2.66 billion reported in the corresponding period a year earlier, though slightly lower than analysts had expected.

Australia's third-largest bank by market value said underlying profit for the six months to March 31 rose 6% to A$2.97 billion from a year earlier, broadly in line with analyst forecasts, fueled by the performance of its operations in the Asia-Pacific, U.S. and Europe.

However, profits from its Australian business fell 7% on a combination of lower credit growth and higher funding costs. Despite ANZ's decision to raise interest rates on its standard-variable-rate home loans and small-business lending by 0.06% last month, net interest margins fell by 0.09 percentage point from a year earlier and 0.06 percentage point from the previous half to 2.38%.

The bank gave no indication as to whether it plans to pass on to its customers any of the half a percentage point rate cut announced by the Reserve Bank of Australia Tuesday. ANZ is scheduled to make its official announcement on rates on May 11.

Chief Executive Mike Smith said the bank was working toward reducing its reliance on short-term wholesale funding in a bid to shore up its profit margins, amid slowing domestic credit demand. Lending in Australia rose by 4% over the period, while deposits grew by 6%, the bank said.

"Global markets recovered strongly, reflecting an improved trading environment, further growth in customer sales revenue, and the benefits of the super-regional strategy," Mr. Smith said in a statement.

The company declared a final dividend of 66 cents a share, up 3% from the 64 cents declared in 2011.

The bank said it has raised around 80% of its wholesale funding for fiscal 2012, with A$15.3 billion of debt issued at an average tenor of just over five years, of which around 44% was from Australia.

ANZ's international results showed strong growth. Profits from the bank's Asia Pacific, European and U.S. divisions rose by 21%, driven by a 76% increase at its institutional division, the bank said. Margins at its overseas operations were largely stable.

Credit Suisse analyst James Ellis said in a note that the result "strongly vindicates" ANZ's Asian and institutional strategy.