Anz Maintains Dividend As Profits Tumble

Sydney Morning Herald

Friday October 24, 2008

Danny John

ANZ Bank has dismissed any need to shore up its balance sheet with a rights issue and ruled out cutting dividend payments in the face of what the chief executive, Michael Smith, called "unprecedented" financial turmoil.

Declaring that the bank would only need to tap shareholders to fund a big acquisition, Mr Smith yesterday sought to reassure investors that the country's fourth largest financial institution had not suffered any lasting damage from the crisis, even though it had experienced its first fall in profit in 10 years.

Observers have been expecting at least one of the big four banks to undertake some form of capital raising at a time when provisions for bad debts are rising following the worldwide liquidity crunch.

But apart from indicating ANZ would recycle capital through its dividend reinvestment plan, Mr Smith said a rights issue would only be required to pay for an "opportunistic" Asian or domestic acquisition.

ANZ has been topping up its tier one capital during the past 12 months in response to the crisis, in which global banks have gone to the wall.

Such additional financing will continue, but without the need to ask its shareholders for money or cut the bank's $1.36 dividend.

That has been maintained at last year's level even though the bank's cash profits have fallen 23 per cent, to $3.029 billion, this year.

Though earnings continued to slide in the second half on the back of higher bad debts charges, ANZ will still make a final pay-out of 74c a share after the interim dividend of 62c.

The fall in the bank's annual profits, the first since the Asian financial crisis 10 years ago, was attributed to a $1.4 billion increase to $1.9 billion in provisions for sour and poorly performing loans as corporate customers suffered from the credit crisis.

ANZ also took a $700 million charge against complex financial derivatives whose value fell more than expected.

ANZ said that in the worst case the portfolio's losses could total $400 million, but it expected to write back much of the value as markets eventually recovered.

Yesterday's result came in at the level forecast by the bank in July and was bolstered by its Australian division, which grew its contribution by 12 per cent to $1.48 billion. That was more than offset by a $900 million drop at its institutional operation to $526 million and a $120 million fall in its recession-hit New Zealand arm.

The fast-expanding Asian business, which is the main hope of Mr Smith's ambitious growth plans for ANZ, was the only other bright spot, recording a 52 per cent rise in profits to $413 million.

Revenue across the bank rose 12 per cent, to $12.34 billion, as it sucked in demand for lending, but operating costs also rose. The bank has set aside $100 million next year to underpin a cost-cutting program, reducing staff and several layers of management.

As for the prospects next year Mr Smith said he did not expect Australia to go into recession like the US and Britain.

"The worst of the shocks will subside by the end of the year. We will see a flow-through to the normal economy."

ANZ shares fell 99c to $18.01.