Diminished earnings from the sale of ANZ’s Asian banking businesses will continue to cloud the bank’s results for the foreseeable future, says UBS.
ANZ announced a $3.41 billion cash profit on Tuesday, but at the time of writing the bank’s share price had fallen by over 5 per cent in the interim (the S&P/ASX 200 was down 1 per cent over the same period).
Part of the reason for the share market reaction, according to analysts from UBS, is the “messy” nature of ANZ’s earnings with “a number of lumpy items clouding the result”.
Recent efforts by ANZ chief executive Shayne Elliott to “clean up” his business have included the sale of “non-strategic and less profitable” Asian retail banking businesses, UBS said.
While investors should give Mr Elliott “credit” for strengthening the bank’s balance sheet by exiting the businesses, the capital gains from the sales come at “the expense of revenue power”.
Excluding 'lumpy’ items, ANZ saw its revenue fall by 1.5 per cent, and the ANZ numbers will “remain messy for another two to three years”.
“We expect this to remain the case for the next two-three years as it restructures its business. During the [second half of 2017,] ANZ will begin to see the impact of the sale of its Asian retail business, with the drag to earnings increasing in the [first half of 2018],” UBS said.
“Much of the capital being released by ANZ as it reduces its exposures in these areas is likely to be required for regulatory capital purposes.
“While many investors are attracted to the turnaround prospects at ANZ, we believe that this process is unlikely to be a straight line and a lot of good news is in the price.”
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