Monday, February 18, 2008

ANZ Bank’s 2008 Profit May Suffer Due to US Crisis

by Michelle Roberts

The slowdown in the US economy is slowly affecting the economy of the world and the latest forecast by Australia’s third biggest lender, Australia and New Zealand Banking Group Ltd. has investors and shareholders worried about their investments. Chief Executive Officer Michael Smith of the bank said that the bloodbath going on in the debt market will considerably hurt the 2008 earnings of the bank. ANZ also stated that it is planning to take greater measures for bad debts that can affect profit. The plan also includes a $200 million charge for exposure to the US insurer ACA Capital Holdings Inc. which is expected to affect an estimated 11.5% gain in underlying profit. The bank likewise is also planning to take measures of $82 million for exposure to an Australian property group which analysts identify as Centro Properties. The bank is also planning a provision of about $46 million for exposure to an unidentified miner. CEO Mike Smith also said that in the first four months of the bank’s trading there were encouraging results from Personal and Asia as well as a big improvement in the institution and solid gains from New Zealand but this was surpassed by greater credit costs in the commercial lendings of the bank.

The statement from the bank came all too suddenly and gripped the investors with fear which in turn affected the shares that recorded a sharp decline in the market. Although the Australian Banks do not have any direct exposure to the subprime mortgage of the United States, however the traders say that updates by ANZ indicate that lenders are no longer safe from the effects of the growing loan crisis around the world. Non-payments on the perilous US housing mortgages have led to increase in billions of dollars and Euros to the investment banks that not only includes the ANZ but also banks like Citigroup Inc, Merrill Lynch and Company and UBS AG. The defaults on the US housing mortgages have also generated fears in investors that the bands insured on the subprime loans by banks such as MBIA Inc and Ambac Financial Group Inc are likely to fail. Angus Gluskie, who manages ANZ shares and others worth $500 million at the White Funds Management in Sydney, said that bad debts will increase further and banks will continue to have them all through the year.

Shares of the ANZ dropped by 5.5% and remained at A$22.59 which is the lowest price of the shares recorded since September 2005. The reported net profit of ANZ for the year that ended on September 30, 2007 was $3.8 billion. Thomson One Analytics forecast the profit of ANZ for the financial year of 2008 to stand at $4 billion. The estimated full year net profit of ANZ was $4.34 billion which could have been 3.8% greater than the profit it posted last year and this profit forecast for the bank was before the announcement made by the bank which said that profits would decline for the current year.

 

 

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