St George To Prove It's No Commonwealth

Sydney Morning Herald

Monday February 18, 2008

Danny John

ST GEORGE Bank is expected to reassure nervous investors that the financial woes experienced by its much bigger rival, the Commonwealth Bank, which last week wiped billions of dollars off the banking sector's combined ASX value, have yet to have any major effect on its current year.

While the country's fifth largest bank has raised its home lending rates the most in the two most recent increases as it, too, feels the pinch of the global credit crunch, it is understood St George is experiencing little financial pain on its bottom line.

Arrears across its portfolio of loans remain low, repossessions of homes are equally tiny despite rising interest rates and the bank has, since last October, raised nearly $3 billion in extra funds to meet the demand for increasing lending.

One clear signal, according to market watchers, has been the lack of any pronouncement from the bank about a change to its guidance on its 2007-08 results.

The only bank of the top five to give a definitive target at the end of each financial year, St George indicated last October that it expected a 10 per cent rise in earnings-per-share for the year ending this September. The forecast was confirmed at its annual meeting two months later in December.

The bank, which turned in net cash profits of $1.16 billion and a near 12 per cent growth in EPS for 2006-07, closes its books on its current half at the end of next month.

Analysts will dissect in particular detail both figures after the Commonwealth disappointed investors with a net profit increase of 4 per cent - to $2.38 billion - and an even lower EPS growth of just 2 per cent. The results sent bank shares into their steepest one-day decline for 19 years.

St George suffered the highest percentage fall, shedding almost 7 per cent to $25.52, a level not seen for almost three years. The stock staged a mini-recovery a day later, but then lost it all again on Friday. It ended the week at $25.50, having hit a high of $38 just three months ago.

The fall will test the resolve of the bank's retail shareholders as they decide whether to take part in a $110 million fund-raising issue under which investors can subscribe for up to $5000 of additional stock. The offer closes in nine days.

But they at least face paying significantly less than the $35 a share which institutional shareholders coughed up in a recent placement. The retail price will be at a slight discount to the average value of St George's shares between this Thursday and the following Friday.