ANZ inflates

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Here’s Mac Bank’s take on the ANZ result:

Event

  • ANZ’s FY13 result came in slightly stronger than expectations at $6.49bn vs. MRE $6.45bn (Consensus $6.4bn). The dividend surprised on the upside at 91cps (vs us at 82cps and consensus at 86cps). That’s however where the good news stops. Margin decline was large at 6bp HOH and Non NII markets income was weak (down 24% HOH). Cost growth was elevated at 4% HOH leading to -2% JAWS HOH (revenue growth was only 2%). This led to a rise in the cost to income ratio and a fall in RoE to 15.1% in the half. Overall, a beat on the dividend but compositionally looks weak on costs, Non NII and margins.

Impact

  • Cash profit just above our expectations; dividend strong: 2H13 cash profit came in at $3.3bn (FY13 cash profit $6.5bn) compared to MRE 2H13 estimate $3.27bn (FY13, $6.5bn) and consensus 2H13 $3.25bn (FY13 $6.4bn). 2H13 DPS came in at 91cps, above MRE of 82cps and consensus of 86cps; the payout ratio on a diluted basis equates to 77% of 2H13 cash profits.
  • Operating revenue growth came in at 2.0% HoH with margins/fee income soft and -2% JAWs HoH: Revenue growth of 2.0% HoH (FY13 3%) came in above MRE of 1.4% HoH (FY13 4.1%). Although margins were soft, revenue growth was stronger than expectations due to strong asset growth.
    • NIM decreased 6bps from 2.25% to 2.19% driven by a 16bp decline in the IIB NIM (to 2.61%), which was less than the 20bp decline guided to at the 3Q13 trading update. There was also a 1bp decline in the Australian margin to 2.52%.
    • Asset growth was strong, coming in at 5.0% HoH compared to MRE expectations for growth of 4.2% HoH.
    • Non NII was weak with a 3.3% HoH decline compared to MRE +2.5%. This was driven by softness in global markets, which declined 24% HoH as well as foreign exchange earnings, which declined 44% HoH.
  • Cost growth ugly at 4.2% HoH: Cost growth of 4.2% came in below expectations driven by a 3% increase in personnel and premises expenses with most of the cost increase in the IIB division. We estimated flat costs HoH at 0.1% (0.6% YoY). The cost-to-income ratio increased HoH to 45.2% from 44.4% in 1H13.
  • Impairments in line with expectations at 26bps, with improvement IIB and NZ: BDD expense came in at 26bps (Impairment/GLAA), in line with MRE of 26bps and improving from 1H13 of 27bps. This was driven by an improvement in asset quality in New Zealand and the IIB division but offset by an increase in the provision in Australia.
  • Capital generation strong: ANZ generated 30bps (B3 basis) of CET1 HoH to be sitting at 8.5%, up from 8.2% at 1H13 and above our forecasts. RoE down to 15.1% in the half, from 15.5%.
  • Divisional commentary: Cash NPAT at the Australia division increased 3% with 4% loan growth, NZ had 15% HoH cash profit growth and saw a strong improvement in impairment and asset growth, while the IIB division margin was down 16bp but better than expected. IIB cash profit increased 3% HoH with a 5% increase in costs.

The stock is up 2% and the bubble grows.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.