ANZ shares slip despite 36% profit jump

Improved margins and a fall in provisions for bad debts have helped ANZ Banking Group Ltd to a 36 per cent rise in first half profit.

Australia's third largest bank provided an upbeat outlook for its local and Asian operations, but remained cautious on conditions in the US and Europe and their impact on a global recovery.

Net profit for the six months to March 31 was $1.925 billion, up from $1.419 billion in the prior corresponding period.

Cash earnings, the bank's preferred measure of profitability, more than doubled to $2.376 billion, up from $954 million in the previous corresponding period at the height of the financial crisis.

"The thing is that we gave a trading update two months ago, where I guess we highlighted very much where we would be, so this has been no surprise," chief executive Mike Smith said.

The bank's shares were the worst performer among the S&P/ASX 50 on Thursday as ANZ failed to give any guidance on future earnings and the dividend disappointed some investors, according to market analysts.

The stock fell 65 cents, or 2.62 per cent, to close at $24.20, the lowest in six weeks. But the shares have surged 57 per cent over the past 12 months.

ANZ reduced its bad debt charge by 23 per cent from a year earlier to $1.098 billion, with the number of new impaired loans falling.

It expects that trend to continue.

New impaired assets are mainly coming from small and medium sized businesses, while stress among consumer loans has not been as bad as once expected due to stronger employment results, Mr Smith said.

ANZ's absolute level of impaired loans is expected to increase into 2011, but at a slower rate.

Margins gained 15 basis points to 2.68 per cent compared with the preceding half, as ANZ recovered higher funding costs and priced risk at a more sustainable level.

CLSA analyst Brian Johnson said ANZ's headline figures were slightly ahead of market expectations, while the details on margins and bad debts were positive.

"The results are better than we expected, and from a quality perspective, I'd say it's pretty good," he said.

The bank's Australian division posted the strongest profit growth during the first half at 33 per cent, as its institutional, commercial and wealth businesses performed, while the retail business was flat.

New Zealand operations recovered from the preceding half, but a 35 per cent decline in profit showed that economy remains under pressure.

Despite Mr Smith's comments that Asia would remain the world's best performing region in the future, where ANZ remains focused on expansion, its Asia Pacific business' profit slipped 27 per cent.

Growth plans continue, with ANZ appraising Lone Star Fund's 51 per cent stake in Korea Exchange Bank, which is up for sale.

"It would be remiss of us not to look at it," he said, before adding that no decision has been made. South Korea is a major trading partner of Australia, and has a large economy, so the Korean asset would fit with ANZ's Asian growth strategy, Mr Smith said.

The bank said its Tier 1 capital ratio was at 10.7 per cent compared with 10.6 per cent six months earlier.

A fully franked first half dividend of 52 cents per share was declared, up from 46 cents a year earlier.

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