In a shareholder update today ANZ said its underlying business was continuing to deliver solid results however the continuing deterioration in global credit markets, a weak New Zealand economy and softening Australian economy would continue to give rise to further provisions and valuation adjustments in the second half of 2008.
• ANZ’s underlying business is performing well, particularly Personal and Asia Pacific. Profit before Provisions is expected to be up by around 8% compared to 2007 and cash profit to be over $3 billion. Income is expected to be up around 8-9% (10% FX adjusted). Margins have stabilized.
• 2008 Cash EPS is expected to fall 20-25% on 2007 reflecting the impact of high provisions.
• Credit impairment costs will remain high in the second half as a result of the ongoing deterioration in global credit markets, a weak New Zealand economy and a softening Australian economy. Provisions in the second half are likely to be around $1.2 billion ($980 million for the first half 2008). - Collective Provision. The Collective Provision will be reset to above one percent of credit risk weighted assets. This is a prudent response to the sustained deterioration in the global credit environment and softening domestic economies in New Zealand and to a lesser extent in Australia. As a result, the Collective Provision charge is expected to be around $375 million in second half ($376 million in the first half 2008). - Individual Provisions. Known credit issues have deteriorated including certain commercial property clients, securities lending and Bill Express. As a result Group Individual Provisions are expected to be around $850 million in the second half ($604 million in the first half).
• The value of US credit intermediation trades, previously disclosed, is expected to be adjusted down as a deduction from income by a further $160 million.
• ANZ is continuing to invest to maintain underlying business momentum including growth in Asia. Cost growth for the year will be around 9%. Strategic cost reduction initiatives are being accelerated.
• ANZ continues to maintain a strong capital position. ANZ plans to exchange the ANZ StEPS hybrid securities into ordinary shares at a 2.5% discount. A discount of 1.5% on the ANZ Dividend Reinvestment Program will be continued and ANZ retains the flexibility to underwrite the 2008 Final Dividend. The full-year dividend is expected to be maintained at 136 cents per share fully franked.