Less News May Be Better News, St George Thinks

The Age

Thursday May 8, 2008

Danny John

ST GEORGE Bank will review its long-standing policy of giving profit guidance to investors after a dip in its expectation of hitting $1.3 billion this year led to its shares taking a battering over two successive days.

The poor responses to both the cut in its earnings target and its smaller than expected half-year profit of $603 million has prompted chief executive Paul Fegan to rethink the financial target St George puts out to the market. St George is the only one of the top five ASX-listed banks that discloses what it expects to achieve as much as a year in advance. That was less of a problem when the economy was doing well, but the slide in equity and financial markets over the past six months led the bank to finally admit on Tuesday that it would undershoot its expected 10% figure and come in with a rise of perhaps only 8%.

Having as late as last month built up expectations that it was still on target, the disappointment of a half-year profit result that missed analysts' hopes by $23 million was exacerbated by the cut in earnings guidance.

The immediate pain was felt by St George shareholders who, despite receiving a 6? rise in the interim dividend to 88? a share, saw their stock punished again yesterday with an even steeper fall of 93?, after the initial slide of 76? on Tuesday.

That took the combined drop to 6.2% in value as St George finished trading at $26.05 - a slide that brought to a sudden halt the recent recovery in its share price and in those of its rivals following the heavy falls suffered since November.

Mr Fegan said that in the wake of Tuesday's drop he would "weigh up the benefits" of producing future guidance, although he emphasised that the bank's anticipated target was an indication, not an absolute forecast, of what it would achieve.

He accepted that such targets were high hurdles, especially when a well-performing economy started to slow down, but added that the most recent guidance had been given in "good faith".

Nonetheless, Mr Fegan now faces the task of restoring investor confidence in St George's immediate prospects after market analysts expressed doubt as to whether it would achieve its now lower target.

The half-year outcome even prompted banking analysts at Deutsche Bank to advise clients to sell down their holdings in St George, saying its recent stock price, compared with those of its rivals, "does not look justified".

The bank's performance also led to a tough day of trading for the rest of the banking sector. ANZ, Commonwealth Bank, Westpac and National Australia Bank were left rueing slides of between 2.6% and 3.1% as investor nervousness increased about future financial performances.