Dragon On Track For Record

A LATE surge in profitable income over the final weeks of the financial year is set to lift St George Bank to record earnings of $1.3 billion, although the result is likely to be at the lower end of its reduced forecasts.

The bank, which is due to merge with its bigger rival, Westpac, in November, expects to add at least another $230 million to its coffers by the year's end. The "Dragon" had chalked up $1073 million cash profits by the end of last month.

Yesterday's disclosure that St George remains on track to meet its earnings per share growth target of 8 per cent to 10 per cent caps a highly unusual set of trading updates by the big banks before their financial results are released.

Barring the Commonwealth Bank, whose report to June 30 will show a subdued $4.7 billion annual profit when the figures are released today, the banks have been forced into early disclosures because of the grinding effect on their earnings of volatile credit and financial markets.

St George, which trimmed its earnings forecast in May, and Westpac, the least affected of the big banks so far, suggested they had been forced into updating the market after write-downs 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 led to the sector's stock prices being mauled and focused unwanted attention on the other banks. Westpac countered the 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.

But analysts still questioned the quality of what is likely to be St George's final full-year profit result as an independent bank.

The bank's chief executive, Paul Fegan, sought to address concerns about its funding costs and one-off earnings boosts by stating that tight cost control and revenue growth of 9 per cent, to almost $3 billion, had already produced a 12.5 per cent increase in cash profits.

Mr Fegan indicated the Reserve Bank could cut interest rates twice before the end of the year but said he could not guarantee St George would pass on the full effect because of the financial pressures on the bank.

St George will close its books on September 30. Analysts said that based on the bank's own figures a $1.3 billion result was now likely, compared with $1.16 billion last year - an indication that the bank would just hit the 8 per cent growth target.

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

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

St George shares rose $1.07, to $31.30, 90c below the value of Westpac's all-scrip offer.