Australia and New Zealand Banking Group (ASX:ANZ) provided a quarterly trading update this morning, announcing a 5% rise in cash profit during the quarter compared with the second half of last year.
Profit Stable as ANZ Adjusts to a Slowdown in Asia; Australia & NZ Robust
In an announcement to the ASX this morning, ANZ Chief Executive Officer (CEO) Shayne Elliot said that retail and small business segments performed well, while corporate borrowing demand was “subdued”. Overall conditions were a mixed bag with Australia and New Zealand’s economies performing as expected and domestic credit environment stable. However, the slowdown in the mining sector caused some weakness, while its Asian business was challenged.
Shayne Elliot stated that conditions in Asia were robust in the first three months, however the impact will increase going forward. He said: “In Asia economic growth is slowing although we saw little direct impact in the first quarter. Our exposure in Asia is predominantly short tenor, investment grade lending nevertheless the slowdown in the region and increased market volatility are seeing credit conditions become more difficult in the second quarter.”
Credit charges for the group will be $65 million higher than initially stated at $800m for the half year. Management will take action to “reduce costs, to tightly manage the credit environment and capital, and to simplify and reposition the business,” so Shayne Elliot.
ANZ’s Results at a Glance
- Cash Profit of $1.85bn, up 5% compared to last year and 4% compared to pcp
- 2.5% reduction in staff members
- Net Interest Margin 2 basis points lower (204 basis points in September 2015 half)
- Institutional Market Income up 6% to $553 million
- 56% of Markets’ Income from Customer sales, in line with prior year
Common Equity Tier Ratio at 13.1% (Basel Standard)
ANZ stated that its APRA Common Equity Tier 1 ratio, also known as CET1, was 9.4% which translates into 13.1% on a Basel III internationally comparable basis.
The third instalment of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. The minimum requirement for banks is to hold 6% of common equity of risk-weighted assets at all times. Since the 2007-2008 GFC banks around the world have focused on strengthening their balance sheets and are now in much better shape than many years ago.
US banks have systematically increased their CET1 figure over the past few years with Morgan Stanley announcing a CET1 ratio of 12.5% in Q2 2015 while other major banks averaged between 10.3 and 11.4%.
ANZ ranks well on an internationally comparable basis, lifting its CET1 by 45 basis points since 30 September 2015, driven by “organic capital generation” and the sale of the Esanda portfolio.
ANZ’s Stock price down 35% in the past 12 Months
Shareholders of ANZ have experienced a rather subdued year with ANZ’s stock price retreating 35% from last year’s high. Since the beginning of the year ANZ has lost nearly 17% amid a stock market rout that hit financial stocks particularly hard.
Author: Simon Herrmann
Feb 17, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.