ANZ Slashes Earnings Forecasts, Ups Provisions

ANZ bank, Australia's third-biggest lender, issued a profit warning on Monday, forecasting more than $1 billion in bad debt charges, as the global credit crisis started to hurt the country's
previously buoyant banks.


The announcement sent ANZ shares down as much as 13.2 percent in early Sydney trade.

Australia and New Zealand Banking Group (ANZ) said it was likely to book provisions of around A$1.2 billion ($1.1 billion) in its second half, news that came only three days after bigger rival National Australia Bank shocked the market with another A$830 million in losses related to the credit crisis.

ANZ said in its statement that 2008 cash earnings per share were likely to fall between 20 percent and 25 percent on the previous year as a result of the rise in credit impairment costs.

"That is a dramatic downgrade in cash EPS," Argo Investments banking analyst Christopher Hall said.

Australian banks have so far seen themselves as fairly sheltered from the global credit crunch but NAB's announcement on Friday sent its shares down as much as 15 percent.

"As the deterioration in global credit markets continues and the slowing of the global economy plays out in Australia and in New Zealand, there are flow-on effects for our commercial portfolios and to a lesser extent the personal portfolios," ANZ Chief Executive Mike Smith said in the statement.

Second-half provisions would rise from A$980 million in the first half and comprise of around A$375 million in collective provisions and A$850 million in individual provisions.

"They are being prudent, they are not impaired in this statement. They are raising collective provisions in case things really go pear-shaped," Argo's Hall said.

ANZ said its 2008 cash profit was likely to be over A$3 billion and it expected to maintain its full-year dividend at 136 cents per share.

While ANZ said its underlying business was performing well, particularly its personal banking and Asia businesses, significantly higher mortgage interest rates and higher food and petrol prices were weighing down heavily on consumers and business.

"While losses are being contained, individual provisions are likely to be around three times the low levels experienced in 2007. Losses on commercial and corporate lending have also increased," the bank said.

ANZ said it continued to maintain access to global capital markets despite volatile conditions, and was planning to raise about A$30 billion in term debt in 2009.

The bank said it had no direct exposure to US subprime mortgages, and no direct exposure to subprime collateralised debt obligations (CDO).

ANZ said its commercial property exposure was about A$26 billion, or 8 percent of the total book.