Anz Sets New Targets After Record $1.75bn
Sydney Morning Herald
Friday October 27, 2000
ANZ Banking Group chief executive Mr John McFarlane has proclaimed the bank is ``back in the game" after delivering yesterday an 18 per cent rise in annual net profit to $1.75 billion, thanks to a big rise in personal lending.
ANZ chose to take a $361 million charge, in order to modernise its Australian branches and and slash costs by improving its information technology systems, rather than spend a $404 million profit booked from the sale earlier this year of banking operator Grindlays on a buyback.
Spurred by the cost initiatives, investors marked the shares up to a record high of $14.49 before closing 13.5c higher at $14.38.
The profit was well ahead of market estimates and included a 25 per cent rise in profit in the personal area, including mortgages and credit cards.
ANZ expects to take up to three years to recover the restructuring charge through better productivity, extra revenue and an estimated $300 million a year in cost savings.
``They are really homing in on costs and there have been [profit] upgrades by respected analysts that are cost-driven rather than anything else," Ausbil Dexia's head of equities, Mr Paul Xiradis, said.
The result boded well for the balance of the banks' profit reporting season in coming weeks, given concern about a more difficult credit outlook, he said.
Mr McFarlane outlined new two- to three-year targets to bring its performance into line with National Australia Bank and the Commonwealth Bank. ``We have had a real turnaround to do in the last three years and we believe that this result is credible, but all it does is put us back in the game," Mr McFarlane said.
The fresh targets include cutting the bank's cost to income ratio from 51.7 per cent to ``comfortably in the 40s", raising the bar on earnings per share growth to more than 10 per cent, and increasing the return on equity from 18.3 per cent in the year under review to more than 20 per cent.
The targets complement Mr McFarlane's plan to run ANZ's 21 business units as specialist units under a radical strategy unveiled in July, which differs markedly from the bancassurance model pursued by NAB and CBA.
Mr McFarlane said he could not make ``any sense" of the high prices paid recently for funds management assets bought by banks and ANZ had no intention of doing likewise.
``This is not the same strategy as our competitors," he said.
ANZ booked a net abnormal profit of $44 million, with the Grindlays profit offset by the restructuring charge, an $81 million writedown of the 29 per cent stake in the Indonesian bank Panin and an extra $50 million provision for undisclosed litigation.
The bank returned to full franking of its dividend, which totalled 64c up 56c from last year including a final 35c payable on December 15.
Mr McFarlane said while there could be another rise in official interest rates, the economic outlook was ``benign".
ANZ had commanded 25 per cent of the Australian mortgage market last year and expected to match that figure this year.
One of the most worrisome aspects of the result was a 21 per cent rise in the provision for doubtful debts in Australia, and Mr McFarlane admitted the bank had expanded in personal loans and credit cards too aggressively. This would be curtailed.
The accounts also showed that ANZ's e-commerce division, including the Etrade online broking alliance, returned total income of $63 million but a pre-tax loss of $33 million.
BANK BACK IN THE GAME
* Cost-income ratio falls from 54.4pc to 51.7pc
* Books $245m restructuring charge.
* Profit per employee $62,783 v $47,586
* Personal financial services profit up 25pc
* Corporate financial services profit up 15pc
BACK IN THE GAME
September year
1998 1999 2000
Net profit ($bn) 1.12 1.38 1.75
EPS (c) 72.4 90.3 106.3
Final dividend 28 30 35
© 2000 Sydney Morning Herald
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