ANZ produced a profit of $6.47 billion for the full year, staying flat year-on-year, with chief executive Shayne Elliott citing low rates, increased remediation costs and heightened competition.
Operating income for the major bank fell by 2 per cent to $19 billion for the 2019 full year.
ANZ’s cash profit decreased in the second half of the year by 12 per cent to $2.9 billion.
This year’s final dividend is 80 cents a share, the same as the year prior, however they will be franked at 70 per cent, in contrast to when they were fully franked in 2018.
ANZ’s decision to reduce its franking level reflected the “changed shape” of the business, Mr Elliot commented.
“This has been a challenging year of slow economic growth, increased competition, regulatory change and global uncertainty,” Mr Elliott said.
“Despite the challenges, we maintained focus on improving customer experience, balance sheet strength and improving our culture and capability.”
Mr Elliott stayed optimistic, noting ANZ has reduced its cost and risk of operating, although “strong headwinds impacted the sector.”
Volatile geopolitics, low rates, intense competition to eat at profits
In its outlook, ANZ warned the current challenging conditions will not ease up for the bank just yet.
“The Australian housing market is slowly recovering; however, we expect challenging trading conditions to continue for the foreseeable future,” Mr Elliott said.
“Record low interest rates and intense competition will continue to impact profitability.
“Geopolitical tensions will also place pressure on earnings given our exposure to global trade, although this can be managed through the diversification of our business. Increased compliance and remediation costs will also need to be closely managed over the foreseeable future.”
The institutional division was the only segment to see positive movement in the past year – with its profit growing by 24 per cent to $1.8 billion.
ANZ’s institutional business also saw the largest change to its staff, with its full-time employees dropping by 12 per cent, largely through its divestments.
However the total number of staff in Australia has risen by 1 per cent, catering to the group’s need for more resources in compliance and customer remediation.
Remediation hits earnings
Meanwhile the Australian retail and commercial business saw its profit drop by 12 per cent year-on-year, coming to $3.1 billion.
Customer remediation charges totalled at $585 million for the 2019 full year, with most of it ($485 million) being incurred in the second half. Around $100 million was returned to customers in this financial year.
The total charges for remediation since 1H17 have accumulated to $1.2 billion.
ANZ warned at the start of October that its profit would be hit by extra customer remediation charges, having allocated a further $559 million after-tax.
“Retail and Commercial in Australia had a difficult year,” Mr Elliott said.
“Along with increased remediation charges, intense competition and record low interest rates have had a significant impact on earnings.
“While yet to flow through to the balance sheet, management actions and operational improvements have seen a steady recovery in home loan applications in recent months. This momentum is expected to be maintained into 2020.”
NZ hinging on capital requirements
The New Zealand segment’s profit fell by 8 per cent to $1.3 billion.
APRA and the Reserve Bank of New Zealand have proposals in place that could lift the amount of capital required to support Kiwi subsidiaries as standalone entities.
Morgan Stanley has warned the ANZ’s distributable payouts for shareholders could fall as a result, if the bank consequentially is not able to leverage its Australian capital for its NZ business and instead needs to redistribute its New Zealand earnings.
ANZ said the impact for it remains uncertain, with deciding factors including the outcome of consultation, particularly the amount of capital required, the time allowed to achieve it and instruments permitted to be used.
The bank’s common equity tier 1 capital ratio now sits at 11.4 per cent, around $3.5 billion above APRA’s 10.5 per cent“‘unquestionably strong” benchmark.
Mr Elliott commented capital efficiency will remain a priority for the bank, in light of the potential changes in New Zealand.
“Compliance and remediation costs contributed to higher operating expenses,” Mr Elliott said.
“This was mainly driven by the complex work required to comply with new regulatory standards that all the subsidiary banks be able to operate as standalone entities.”
The sale, which is expected to be completed in the first quarter of 2020, will generate $850 million for ANZ.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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