Edited by Nelly Tawil
For the first time since the global financial crisis ANZ has cut its dividends after its first-half profit slumped by almost a quarter. They experienced a drop of cash profit during the first 6 months to March 31 to $2.782 billion (24.3%) – its lowest since 2010 – largely due to a $717 million hit from writedowns and restructuring charges, which the bank deemed necessary in the face of a more challenging business environment.
ANZ boss Shayne Elliott is the first chief executive to acknowledge that traditional dividend payout ratios are no longer sustainable in the current environment. ANZ has cut its interim dividend by six cents to 80 cents for a payout ratio of 67%, and reiterated it determination to pull the ratio back from the increased returns of recent years to between 60 and 65%.
The Chief executive announced the cost of restructuring would leave the bank well placed to return to profit growth.
“This result reflects a challenging period for banking and we have taken the opportunity to move decisively and adapt,” Mr Elliott said.
“For the immediate future, we are in a period of consolidation, simplification and transition.”
The $717 million hit included $441 million related to accounting changes designed to accelerate amortisation and a $260 million impairment on its investment in Malaysia’s AmBank.
“This is not about clearing the decks … it is about recognising the world has changed,” Mr Elliott told analysts. “This is not slash, burn and repair: that is not what we’ve done today.”
UBS analysts said the results represented “the rebase we’ve been waiting for” in a sector facing significant headwinds.
“We believe ANZ is making the right decisions, addressing many of the market’s concerns,” UBS analyst John Mott said.
“However, as has been seen numerous times in bank restructurings since the crisis, these processes are never easy and invariably lead to additional earnings volatility.”
While blaming lower commodity prices that have weighed on the resources sector and related industries ANZ reported a $918 million provision for bad and doubtful debts.
The provision was slightly higher than the roughly $900 million it had warned the market to expect when it revised its forecast in March.
“We probably have seen the worst of it with regards to the resources sector sell-off,” IG market analyst Angus Nicholson said.
“The worst of the resources crash is over but, with regards to their Asian assets, I don’t think that is totally sorted out just yet.”
Net profit dropped 21.9 per cent to $2.738 billion, the lowest since $1.93 billion in the first half of 2010, and cash return on equity slumped from 14.7 per cent to 9.7 per cent.
ANZ shares dropped as much as 4.0 per cent at the start of trade before rallying strongly.
They closed up $1.32, or 5.56 per cent, at $25.05.
All of the major banks face a tough operating environment but ANZ has a different set of problems to the other majors, where bad debts will be the key feature of the current earnings season.
ANZ shares took a hit before Easter when it announced its group credit charge would be higher than expected but investors will be surprised by the extent of Elliott’s clean-out.