Yesterday, it was Westpac Banking Corporation [ASX:WBC] that was under the microscope. They’d just released their half-yearly results for 2016. The results were in line with, if not slightly lower than, expectations. Westpac’s share price dropped 3.82% yesterday correlating with the results announcement. Investors were displeased that Westpac’s net profits fell $299 million short of what was expected.
But, today, another bank will be in the lime light. Investors turned their eyes on ANZ Banking Group [ASX:ANZ]. The bank posted their half-yearly results for 2016 this morning. From first glance, results were severely lacking. ANZ’s net statutory profits decline as much as 22%, to $2.73 billion. Meanwhile, cash profits were down 24%, to $2.78 billion.
ANZ has now posted one of the biggest falls in earnings at a major bank in over a decade. These results follow ANZ’s disappointing performance for their institutional business. However, a majority of the decline is attributed to a $717 million one-off item. This included changes to accounting for software depreciation.
As a result of ANZ’s terrible performance, the bank has slashed interim dividends by 7%. ANZ said they would only be paying shareholders 80 cents for every share that they owned. The bank also mentioned that traditional dividend payout ratios might no longer be sustainable in the current environment.
‘ANZ will gradually consolidate to its historic range of 60-65% of annual cash profits. This setting better reflects the changed banking environment in which we operate and greater demands for capital,’ the Group stated.
ANZ’s CEO, Shayne Elliott, said: ‘This result reflects a changing period for banking and we have taken the opportunity to move decisively and adapt to the changing environment by building a simpler, better capitalised and more balanced bank.’
Elliott could be right in his assessment of the banking environment. However, ANZ’s results don’t seem to changing with the industry.
Elliott went on to say that banking is ‘continuing to experience shifts in technology, customer expectations and regulation against the backdrop of low economic growth, volatile financial markets and rising credit costs. Our priority is to take bold action to ensure ANZ is fit and ready for this future.’
Shares opened down 3.7%, at $22.80 per share, before spiking to a high of $24.06 a share. This spike could be in response to ANZ trading at such a low level. A more likely answer might be that it was ANZ’s willingness to turn things around that spurned investor interest. In saying that, ANZ remains 15.2% down in the year-to-date.
This decline already includes ANZ’s one-off item losses. And it also includes their $717 million loss in software depreciation. Most of the negatives in ANZ’s half-yearly report have already been priced in. Therefore, a ‘turnaround’ message might be just want was needed to pick ANZ’s share price off its knees.
Source: Google Finance
Going forward, bad debts will be a key problem. ANZ’s shares already took a hit before Easter, when they announced bad debts would increase to $900 million. But investors will just have to wait to see what will eventuate in the coming months.
Junior Analyst, Money Morning
PS: Many investors buy banks because they’re reliable dividend payers. However, ANZ’s CEO believes high dividends might be a thing of the past soon. The banking industry has been hurt by both industry regulations, and the current global downturn.
This is unfortunate, as many investors can earn a secondary income from their dividend payers. But don’t give up hope. There are still great dividend payers out there in the market. There are over 500 dividend-paying stocks on the ASX. Money Morning’s income specialist, Matt Hibbard, wants to show you how to profit from them.
In Matt’s report, ‘How to Boost Your Income Using Dividends’, you’ll learn the three golden keys to dividend stock selection. You’ll also learn why dividend stocks can be a great way to slash your tax bill.
To get your free copy of Matt’s report, click here.