ANZ announce dividend cut, who’s next?
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ANZ have been the first of the big four banks to announce a cut to their dividend as the banks start to feel some of the pain that has devastated the banking sector overseas.
ANZ announced a cut of 25% to their dividend which in direct response to rising corporate debt levels. This will reduce the annual dividend from $1.36 to a little over $1 and will save the ANZ approximately $500 million.
The announcement came as the ANZ delivered an update for the first four months of the reporting year revealing a update on their current operations.
The ANZ have boosted their provisions for bad and doubtful debts to between $2.4 and $2.5 billion, this is broadly in line with industry expectations. Cash earnings were up 18% on the same period last year but the increased impairment costs drove the cash earnings down 11%. ANZ revealed they have been a beneficiary of cash inflows as income growth grew 16%.
One point of note was the 125% increase in the Asian division which CEO Michael Smith has clearly identified as the future of the company. Although the Asian division is still only small the next couple of years will be pivotal in its Asian stategy and they will have to invest throughout the downturn to ensure building a viable market share.
So now the ANZ have cut dividends, who is next? The Commonwealth and Westpac have intimated they may need to cut but I suspect NAB will be next to the table flagging a cut. Either way the coast is now clear and expect all the banks to flag a cut between 10-30% in the coming weeks.
ANZ profit to tumble
The ANZ Bank announced that their profits are likely to tumble in the vicinity of 15% for the first half amid increasing debt provisioning and risks associated with derivatives.
The ANZ along with all the other banks are being hit with increasing levels of bad and doubtful debts which are causing a dramatic increase in debt provisions amid the global economic slowdown.
NAB, Commonwealth & St George join in cutting rates
The National Australia Bank (NAB), Commonwealth Bank and St George joined Westpac and ANZ today by announcing rate cuts to their standard variable rates.
All major banks have now passed on the full 100 basis point cut to consumers.
NAB and Commonwealth have slashed their rates to 5.74% while St George have lowered their rate to 5.89%, the rate changes are effective from 13 February.
NAB and Commonwealth were at pains to point out that future interest rate cuts by the RBA may not be passed on in full to consumers as the demands and pressures on bank margins continue.
Westpac and ANZ first to cut
Westpac became the first of the banks to cut rates after the RBA announced a cut of 100 basis points to reduce the cash rate to 3.25%.
ANZ followed shortly after announcing a full cut of 100 basis points just like Westpac.
The ANZ and Westpac have lowered their rates to 5.91%. The ANZ announced the cut will take effect from 13 February and further cuts will be passed on subject to funding costs.
As at the time of posting the Commonwealth Bank and NAB have not announced a rate cut..
ANZ push further into China & Indonesia
ANZ continues to drive it’s growth strategy in China with two big announcements for the week. ANZ announced Christine Ip as the new head of banking operations in China and increased it’s stake in the Indonesian bank PT Panin Bank.
The ANZ has been a long term investor in the PT Panin Bank and took the opportunity to buy another 8.4% of the bank from institutional investors for US$114 million. The increased holding takes ANZ to 38.3% ownership of the seventh largest bank in Indonesia.
Meanwhile, ANZ announced Christine Ip as the head of operations for the China banking operations in what ANZ is aiming to become one of the top four foreign banks in China.
Christine Ip joins ANZ from Standard Chartered Bank and has strong credentials and contacts to drive ANZ in China.
Opes Prime continues to haunt ANZ
US law firm Vianale & Vianale has filed a lawsuit against the ANZ in the US as the nightmare that was Opes Prime continues to linger for the ANZ.
The lawsuit filed on 29 December 2008 on behalf of purchasers of ANZ Bank’s ADR’s during the period of 2 March 2007 to 27 July 2008 continues the debacle that was Opes Prime.
Vianale & Vianale allege ANZ’s top executives violated the US securities laws by failing to adequately disclose the range of risks that arose from loans to Opes Prime.
ANZ have announced that will defend the lawsuit.
ANZ signs up Suburu Australia for car financing
ANZ’s Esanda has signed up Suburu Australia to the financing plan of the Federal Government’s $2 billion proposal to save the local car industry.
Subaru Australia’s current finance partner, General Motors Acceptance Corporation Australia (GMAC) will conclude their existing arrangement on 16 April 2009. The new 3 year arrangement with Esanda will take place after the current arrangement with GMAC concludes.
2008 Bank Consolidation 2009 Non-Bank Oblivion
2008 was an amazing year in hindsight. We saw massive consolidation across the global economy particularly in the once dominant banking sector and perhaps we have or are experiencing the worst financial crisis since the great depression.
Only time will tell on that last one but for Australian banks it was clearly a year of consolidation and a period that has once again tipped the weight in favour of the big four banks Commonwealth Bank, ANZ Bank, National Australia Bank and Westpac.
In fact Westpac was the big winner of the year, now Australia’s highest capitalised bank after their successful takeover of former No 5 St George Bank.
Commonwealth Bank also picked up a few through the year with the latest deal the Wizard Home Loans purchase, they also bought 33% of Aussie Home Loans and swallowed Bankwest.
ANZ Bank consolidated it’s position with new CEO Mike Smith re-focusing the bank on tigher fiscal discipline after early financial setbacks through poor lending practices. ANZ also pressed on with it’s focus on Asia as the future development pathway of the bank.
The National Australia Bank did not sit on it’s hands as it consolidated it’s reputation and focused once again on core business in the light of the continuing deterioration in credit markets.
So what’s ahead for 2009, clearly with the crippled financial markets for smaller non-bank lenders further consolidation with occur. It is also fair to say that the regional banks Suncorp, Bendigo Bank and Bank of Queensland are likely to merge or will be swallowed by the big banks.
2009 will also likely see the death of the non-bank lender. These have been virtually damaged beyond repair in 2008 but will disappear or be bought for a pittance.
One last statistic to leave you with, in 2007 the big four banks had 45% of the mortgage market, at the end of November 2008 it was almost 90%. Don’t expect bank margins to reduce anytime soon.
Australian Banks interest rate margins expand
With RBA interest rates now at 4.25%, the same rate that was in place in 2002 it is easier to make an assessment of the margins being charged by the Australian banks.
In 2002 the average standard variable interest rate offered by the big four banks was 6.07%. The current average standard variable rate is 6.82%, an increase of 0.75% from the levels of 2002.
The banks will put this down to the global financial crisis and while funding costs have indeed increased it also reflects an amount of margin creep.
It is estimated that about 90% of all lending is currently being done through the big banks while has heavily impacted the smaller lenders and the lack of funding options has rendered the smaller lenders to be unable to compete in the current environment.
Hence these small lenders have had to increase rates as they are unable to source funds as cheaply as the big banks. This has impaired the local lending market and once again given the banks the upper hand once again against the consumer.
Macquarie Bank follow ANZ & Westpac in bonds issue
Macquarie Bank became the third major Australian bank to issue bonds priced ar US$1.7 billion in the US Bond market as it’s rivals secured funding sources.
ANZ Bank earlier in the week issued bonds of US$1.75 billion, while Westpac followed shortly behind with a US$1.5 billion issue.