St George Shuns Recession Talk

Sydney Morning Herald
30 October 2008
Danny John

THE two drivers of growth which have pushed cash profits at St George Bank to a record $1.3 billion were slowing rapidly but the fall should level out enough to avoid the country sliding into recession over the coming year, the bank's chief executive, Paul Fegan, said yesterday.

Lending to the housing and business sectors has come off sharply in the last six months which will see an expected rise in credit growth in 2009 constrained to as low as 5 per cent - a far cry from the high double digit increases of the recent boom years, the last two of which saw St George cement its break-through into the select billion dollar earnings club.

And while loan arrears in both areas remain low, the bank - due to merge with its bigger rival Westpac in a $16 billion deal next month - has set aside an extra $110 million in this year's accounts to cover the prospect of increasing bad debts.

Yesterday's profit figure contained a $48 million provision that reflected the likelihood of more loans going sour.

Despite the signs of deepening economic gloom, St George expects growth across the country to even out at 2 per cent - slightly higher than recent estimates from ANZ and National Australia Bank.

Mr Fegan told the Herald while demand was tailing off faster than expected, the combination of the Federal Government's $10.4 billion spending boost, falling interest rates and help for first-time home buyers would help to underpin the economy.

St George is also forecasting the Reserve Bank will cut rates by another half a percentage point by the end of next month after slashing the official figure by 1.25 percentage points in recent weeks.

The only major uncertainty was unemployment, the rising effect of which would affect people's ability to pay back housing debt and personal loans, and would dry up lending, Mr Fegan said.

"If you have the combination of the wealth shock [falling stock market values and eroding house prices] and concerns about unemployment, then that is another altogether deteriorating factor," he said.

However, the economic situation was very different to the last recession in the early 1990s and while the national jobless rate was likely to rise to about 6 per cent, he was optimistic growth would continue next year.

Mr Fegan's comments came as St George unveiled what will be its last full-year earnings results as an independent bank before its shareholders give their expected blessing on November 13 to the tie with Westpac.

Despite the the global credit crunch St George increased its cash profits by almost 14 per cent, although the figure was supported by one-off gains. Its earnings rose $160 million year-on-year to its new record. That was struck on a 9 per cent rise - or $300 million - in revenue to $3.58 billion. The bottom line increase pushed earnings per share up 8 per cent to 237c a share and has seen the final dividend lifted by 8c to 94c a share.

St George will also pay a special one-off dividend of 31c a share as part of its merger deal with Westpac that will take the second-half distribution to $1.25. In all, the bank will have paid out $2.13 a share to investors this year. Having hit highs of $28.39 in yesterday's initial surge on the ASX, the bank's shares ended the trading session 52c lower at $26.30.

Analysis - Page 28

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