ANZ Trading Update
In a shareholder update today after 4 months of trading, ANZ said that anticipated growth in profit before provisions for 2008 is on track to exceed the growth rate achieved in 2007 although it is expected this will be offset by higher provisions associated with the changing global credit environment.
Key Points
• Growth in profit before provisions on track to exceed growth rate of 11.5% achieved in 2007.
• Solid momentum in all ANZ’s businesses including a turnaround in Institutional.
• Strong growth in last 12 months in lending (17%) and deposits (23%).
• No direct exposure to US sub-prime.
• Increases in provisions include an Individual Provision of US$200 million on a derivative position with a US monoline insurer which has been downgraded to non-investment grade. It is likely a substantial portion of this provision will be written back in future periods.
ANZ Chief Executive Officer Mike Smith said: “ANZ’s underlying business is in good shape with growth in profit before provisions being driven by strong revenue growth, while the balance sheet has a conservative funding profile and high level of collective provision coverage.
“In the first four months trading, good performances from Personal and Asia, a turnaround in Institutional, and solid results from New Zealand have been overshadowed by higher credit costs on commercial lending. This includes the potential impairment of a monoline counterparty with a US$200 million mark-to-market exposure, although we believe the accounting treatment overstates the likely loss over the life of the transaction.
“While the Australian economy is expected to remain strong, the ongoing instability in global credit markets adds a higher than normal level of uncertainty. This requires a steady focus on growth, risk management and productivity to ensure we remain on track to meet the goals we have set. These include restoring business performance in Institutional and substantially increasing our presence in selected Asian economies.
“We are progressing well but as previously warned we have not been immune from global market issues, including uncertainty around funding costs. However the current turmoil also presents some opportunities to build our business for the longer term, which should help outweigh any shorter term issues,” Mr Smith said.