ANZ Banking Group Ltd chief executive

ANZ Banking Group Ltd chief executive Mike Smith has called the peak of the bad debt
cycle after the bank posted a 46 per cent jump in bad debts that dragged down net
profit.

ANZ reported that net profit fell 11 per cent to $2.943 billion for the year to
September 30 compared with the previous 12 months.
It said bad debt charges blew out to $3.056 billion across all regions, with most of
the increase occurring at its New Zealand unit.
Cash earnings beat the market consensus forecast, rising 12 per cent to $3.383 billion.
Shareholders will pocket a final dividend of 56 cents per share - above the market
consensus forecast of 52 cents - taking total dividends to 102 cents, down 25 per
cent on the previous year.
Mr Smith told analysts and reporters that bad debts had peaked across the current
credit cycle and would decline from the second half of fiscal 2010.
"I think we've probably hit the top," he said.
"I think that the next half is going to be probably a similar amount but that's more
of a lag effect as the problems move through the system and I think the second half
of 2010 will be much more benign."
By contrast, National Australia Bank Ltd chief executive Cameron Clyne on Wednesday
said that the peak of the cycle would remain unknown for five months.
ANZ chief financial officer Peter Marriott said on Thursday that consumer credit
quality across Australasia was stabilising and loan delinquencies declining.
Mr Smith said the Australian economy was still "fragile" and he would have preferred
the Reserve Bank of Australia (RBA) to hold off from raising interest rates until
after Christmas.
He said he could not guarantee future increases in lending rates would not exceed
those made by the RBA.
Mr Smith's comments were similar to those made by Mr Clyne on Wednesday.
ANZ's customers may still be slugged as the bank looks forward to fatter margins,
reversing a 20-year trend of narrowing margins driven by competition.
"I actually think we'll now see margins increase year-on-year for some time because
I think you have to re-price credit properly," Mr Smith said.
Australia's banks spent much of 2009 re-pricing their loan books to adjust for
increasing risk of borrower defaults, higher funding costs and a price-war on retail
deposits.
Analysts lauded ANZ's result and outlook as better than NAB's.
Citi upgraded ANZ to a Buy recommendation and EL & C Baillieu Stockbroking's
financial services analyst Stewart Oldfield noted better than expected bad debts in
the ANZ's Australian unit.
ANZ's costs jumped 12 per cent as the bank continued its expansion in Asia which Mr
Smith said would contribute 20 per cent of total group earnings within two years.
Total revenue surged 17 per cent, thanks to volatile equity markets allowing the
bank's institutional division to drive revenue up 37 per cent from trading.
The division's profit swelled by 82 per cent to $1.4 billion, while profit for the
Australian operations increased by 13 per cent and profits across Asia surged 81 per
cent.
ANZ's stock fell 50 cents, or 2.14 per cent, to $22.85 on heavy volume as
profit-taking across the market continued for a second day, IG Markets analyst Ben
Potter said.
ANZ has the biggest warchest of the big four banks, and pursuing acquisitions in
Australia and Asia are in preference to returning surplus capital to shareholders,
Mr Potter said.