$1.3bn Fires Up Dragon St

A LATE surge in profitable income over the final weeks of its current financial year is set to take St George Bank to record-breaking annual earnings of $1.3 billion, although the figure is likely to be at the lower end of its own reduced forecasts.

The bank, which is due to merge with its bigger rival Westpac in November, is anticipating adding at least another $230million to its current performance, which saw the "Dragon" chalk up $1.073 billion of cash profits by the end of last month.

Yesterday's disclosure that StGeorge remains on track to meet its recently lowered share earnings growth target of between 8% and 10% caps a highly unusual set of trading updates by the big banks before their normal financial results are released later this year.

Barring Commonwealth Bank, whose June 30 year-end will see it report a subdued $4.7billion annual profit today, the banks have been forced into early disclosures because of the grinding impact of highly volatile credit and financial markets on their earnings.

St George, which trimmed its earnings forecast in May, and Westpac, the least affected of the big banks so far, suggested that they had been forced into updating the market after the recent dire bad debt provisions and profit warnings by ANZ and National Australia Bank.

The revelations last month by the two Melbourne-based majors that they would suffer a $1.4 billion profit reversal between them resulted in the banking sector's stock prices being badly mauled and focused unwanted attention on the other banks.

Westpac countered the prevailing gloom on Friday with a prediction that its profits could rise to $3.75 billion by the end of next month.

St George's news that it had contained its poorly performing investment portfolio and bad debt exposure to the likes of Centro Properties, Allco Finance and Octaviar helped lift some of the cloud over its half-year earnings outcome.

But analysts yesterday still questioned the quality of what is likely to be St George's final full-year profit as an independent bank. The bank's chief executive, Paul Fegan, sought to deal with concerns about its post-credit crisis funding costs and one-off earnings boosts by stating that tight cost control and 9% revenue growth to almost $3 billion had already produced a 12.5% increase in profits.

St George will close its books on September 30. Banking analysts said that, based on the Dragon's own figures, a $1.3billion result was likely, compared with $1.16 billion in the previous corresponding period, an indication that the bank would just hit the 8% growth target.

That would be achieved against what Mr Fegan described as "an extremely tough and ... competitive" trading environment. But he said St George's credit and loan arrears position was strong while retail lending needs were being met by higher retail deposits.

Mr Fegan deflected questions about the need for the bank to merge with Westpac or negotiate a better offer than the $18 billion deal.

St George shares closed up $1.07 at $31.30, just 90 below Westpac's all-scrip offer.