Gloomy Outlook Clouds The Crystal Ball

Sydney Morning Herald

Tuesday August 12, 2008

Danny John

IT ANNOUNCED an industry-boosting annual profit yesterday but the recently merged Bendigo and Adelaide Bank refused to predict what the new financial year would bring because uncertain economic conditions continued to shroud the sector.

The bank turned in a net profit of $170.5 million for the financial year ending June 30 and beat its own post-merger target of earnings-per-share growth. But it took a much more cautious approach to 2008-09.

Overall shareholder value would be ahead of where it is now by this time next year, it said, but it shied away from placing a figure on its expected earnings.

"Given the current uncertainties caused by the global credit crisis and the unknown of when confidence will re-emerge in some sections of the financial market, we are not going to provide specific guidance at this time," the bank's managing director, Rob Hunt, said.

His comments disappointed analysts who wanted a more detailed prediction, in line with the bank's previous policy, to help provide a guide to the industry's immediate prospects and the ongoing success - or otherwise - of Bendigo's $4 billion merger with its South Australian partner.

With headquarters in Victoria, the merged entity will look to capitalise on its position in the banking league if Westpac swallows St George as planned.

Its decision to withhold an earnings forecast reflects the gloom hanging over the banking sector, which is in the grip of caution. St George is the only top-five bank to have publicly set future earnings growth targets, and it got caught out in May, when it had to lower its expectations due to tougher trading conditions.

Bendigo's disclosure yesterday of a 40 per cent lift in net profits and a 13 per cent increase in earnings per share to 93.7 cents - a full percentage point higher than the forecast seven months ago - indicated the bank was weathering the recent economic slowdown.

The result was largely in line with post-merger predictions by analysts, who had taken into account the contribution of Adelaide Bank.

Mr Hunt said market conditions were still "testing" and this would lead the bank to revamp some of its businesses, primarily its Adelaide Bank wholesale funding operation, which financed mortgages with money raised from now highly expensive international credit sources.

Bendigo balanced this reduction in funding with an increase in retail deposits through its expanding branch network, which grew by 15 per cent to $23.6 billion over the past year.

Its bad debt and loan arrears positions had worsened slightly, but the bank said its figures were in line with industry trends and were coming off a historically low level.

The bank's cautious optimism and its lower-than-expected exposure to the recent credit and equity market turmoil helped to push its shares up 42 cents to $11.18.

That increase was also fuelled by a higher final dividend of 37 cents, which took the full year pay-out to 65 cents a share - a rise of 12 per cent on last year.