Anz Pre-empts With $975m Hit

The Age

Wednesday April 9, 2008

Danny John

THE prospect of a capital raising by ANZ Bank has grown as investors yesterday digested its near-$1 billion provisions for bad debts amid the likelihood of more loans to the troubled corporate sector going sour.

Analysts indicated that the bank - which now has the highest amount of cover set aside for growing problem loans - could turn to the market to strengthen its balance sheet once the full nature of the bad debts works its way through its accounts.

While taking a $975 million hit on its first-half figures, due out in a fortnight, the bank also said it expects to make further provisions later this year, albeit not as big as the latest figure, which completely overshadows the 2007 total of $567 million.

With all the main market analysts downgrading ANZ's cash earnings per share for the current year by between 4% and 7%, attention yesterday turned to the need for a capital raising to underpin its growth prospects and maintain its dividend at the current rate.

Both Deutsche Bank and ABN Amro suggested the bank will tap investors for more money to relieve the financial pressures.

At the same time, ABN released new analysis, compiled with financial research house Dun & Bradstreet, indicating ANZ is exposed to nearly half of 50 financial services firms ranked among the largest high-risk companies.

According to the research, ANZ is the main banker to 22 of the companies "having the largest representation across the major banks by some margin", the broker said.

"We believe this is likely to be a key driver of the (earnings downgrades), but we are also wary because, given this concentrated exposure, the balance of the risk looks to the downside."

The banking research team at Merrill Lynch described the bank's institutional division, which has been totally responsible for the huge jump in the bad debts cover, as a "perennial disappointer".

But there was some comfort for ANZ and its recently appointed chief executive, Michael Smith, with investment bank UBS saying the bank could take some credit for being the most upfront of the major banks about its sour loan problems.

"We see (ANZ's decision) as prudent and would not be surprised to see other banks follow with similar announcements," UBS said. ANZ's shares yesterday shed a further 34? to $21.67 after their 6.5% fall on Monday.