ANZ delivers profit shocker, cuts dividend

Fresh from ANZ comes the Mums and Dads nightmare:

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This is an awful result. Cash earnings came in at $2.8bn versus $3.6bn expected, EPS was 96c versus $1.20 expected, while ROE was 9.7% versus 14.7% one year ago.

Those optimists that believe in the Australian rebalancing story, might look to pick up some discounted bank shares today given newish CEO Shayne Elliott is no doubt front-end loading his bad news.  But, beware that these losses are only large “one name” borrowers, many in Asia, and if MB is right then a much bigger hit is coming in commercial and residential lending at home as well, as Australia’s post mining boom adjustment grinds on and gets worse as:

  • the capex triptych of cars, mining and property begin to merge in H2;
  • the Mining GFC returns as China slows through H2, and
  • Australia’s AAA rating is stripped soon enough.

On a top down view, better entry points are ahead.

Houses and Holes
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Comments

      • It will be a big day on the bourse. The main course: toasted divvy-hunter.

        Is anyone surprised?

        Disclosure: 10 ANZ (for the eventual recapitalization)

      • Ortega,

        I own 10 shares in ANZ worth today $245.80, to allow me to join the bank’s recapitalisation after they face the bad debts, mortgage fraud, negative equity and cash flow nightmares ahead.

        It is a long shot, I know.

  1. An excellent warm up for when APRA enforce 100% retention of dividends to support capital ratios… 😉

  2. Pfh007MEMBER

    One of life’s ironies.

    Eventually the model where most public money is created by private banks with a trailing commission attached (interest) squeezes those who profit from the model.

    Excessive interest bearing debt, especially when pointlessly created and sprayed unproductively at asset prices, eventually wrecks everything including the banks.

    While one is tempted to gloat it is more important that we act and restore responsibility for the public money supply to the public sector.

  3. Original John

    Big question is CBA and how it will perform. Also, the total exposure to the property developers and foreign purchasers…. Still, result could have been worse, imagine if the dividend had been cut by the same percentage that profits dropped as a result of adjustments…..

    • Torchwood1979

      Re. property developers – the oversupply in Melbourne is still in early phases, Brisbane coming on board quickly (I see it on the train every day… units, units going up EVERYWHERE!!!!!). The hit will take time but it will be ugly when it comes.

      • It isn’t property developers that has hit ANZ, and ANZ itself doesn’t have a major exposure to the Melbourne CBD development scene. They mainly do in-fills in smaller suburban lots. I’m not saying they are perfect, but they have strategically stayed out of the high-rise lending game. On the other hand, its well rumoured that Westpac is neck-deep in high rise developers, yet its results were more benign than ANZ.

        A big part of this result is also Elliot cleaning out the Smith cobwebs. Lets not forget Elliot was the CFO for years under Smith, so knows where all the dead wood is hiding. He will continue to clear out Asia, most of which is under the ‘Institutional’ banner. He got rid of Getzcy in his first week, and is cutting a swathe through the institutional business. Expect more write downs in the Asia Pac business. They will get out of holes like Vietnam, Laos, Cambodia, Mynmar, sell down all of their capital dragging minority holdings, shear back from their expensive and reputationally-costly markets business and this will all cost money.

        Their Australian business is still performing ex the mining sector, but they’ve already gone and started to clear that out.

        Just remember – this ISN’T the crash in bank share prices we are all expecting – yet. Housing prices are still up, retail borrowing for property is still moving along and business borrowing in Aus and NZ is still OK.

        This will all change, and then you will see ANZ and the rest’s share prices being absolutely decimated. If you think todays announcement is scary, its just the foreplay.

  4. Strathfield average home price over $2m

    ANZ cuts dividend

    At least they stripped the balance sheet for their shareholders before the collapse….

    Applause goes to APRA

      • reusachtigeMEMBER

        LOL… the good looking people buying up Strathfield don’t have the facial features of the average wage earner!

      • I once knew a beautiful couple who Invested in Strathfield! they are now divorced… still beautiful though!

  5. SoMPLSBoyMEMBER

    The brochure promised a lazy float along the river but that unmistakeable sound of white-water just woke everybody up with a fright.

  6. I don’t love the smell of CEOfart in the morning.. or any time of the day, for that matter.

    I hope it at least means no bonus for Shane & Co.

    • thomickersMEMBER

      just remember that fund managers get regular inflows and it has to go somewhere…

    • Mr Market has been selling banks for weeks/months already – no real new news here, you are all getting way too excited over not much really.

    • The result, to my mind, isn’t so bad. The major “specified item”, being a change in capitalisation policy re software is a nothing – the cash was already out the door, so whether it sits in the BS or the PL doesn’t really matter in a valuation sense (granted impacts on PE / div pool etc). Further, the redundancy restructuring provision is a good thing – hints to further cost outs (a future benefit on perhaps a multiple of 4 to 5 in future years before the costs creep back in). As for bad debts, essentially in line with an earlier release. So, when considered in the context of yesterday’s 3% down down day, there really wasn’t much more bad news, at present, to factor in. And therefore, it all comes down to future gazing – will bad debts in the commercial and residential property sectors rise to troublesome levels. Unemployment down, budget about to be accommodative to middle Australia so things aren’t looking so bad. A balance view is required. Too many chicken littles.

  7. “Today is going to be FUN! Get the short guns out and sniff the powder…”

    How’s the fun going this morning for all the bank shorters so far?

    • I closed my shorts yesterday as I didn’t want to risk the news today, looking for another opportunity to get in. Not sure if shorting specific banks again or just the financials sector.

  8. Willy2MEMBER

    – “Challenging conditions in the resource sectors and related industries”. What do you mean “”There’s trouble in the mining sector” ??