Company Results – Page 24 – Digital Finance Analytics (DFA) Blog

CBA 3Q Trading Update – Is Pressure Rising?

The CBA released their 3Q update today. We see the same signs of margin pressure and likely slower growth ahead, as in the recent results from ANZ and Westpac. We think the sector will be under more pressure going forwards. Extra capital requirements will also bear down in coming months. Provisions, at the bottom of the cycle were up.

Unaudited cash earnings for the three months ended 31 March 2015 (“the quarter”) were approximately $2.2 billion. Statutory net profit on an unaudited basis for the same period was also approximately $2.2 billion, with non-cash items treated on a consistent basis to prior periods. This was below market expectations.

Revenue growth was similar to 1H15. Group Net Interest Margin continued to be impacted by competitive pressures by around 3 basis points. Trading income remained strong; Expense growth was higher in the quarter, impacted by growing regulatory, compliance and remediation costs, including those associated with a number of legislative reforms (FATCA, FoFA, Stronger Super, LAGIC), provisioning for the advice review program and ongoing regulatory engagement.

Across key markets, home lending volume growth continued to track slightly below system, consistent with the Group’s underweight position in the higher growth investment and broker segments; core business lending growth remained at mid-single digit levels (pa), household deposits growth was particularly strong in the quarter, with balances growing at an annual rate of over 10 per cent; in Wealth Management, Funds under Administration and Assets under Management grew 7 and 8 per cent respectively in the quarter, reflecting strong investment performance, net inflows and FX gains; insurance inforce premiums increased 3 per cent on the prior quarter; ASB business and rural lending growth remained above system and home loan growth was stronger Credit quality remained sound.

In the retail portfolios, home loan and credit card arrears were broadly flat, whilst seasonal factors contributed to higher personal loan arrears. Troublesome and impaired assets were lower at $6.4 billion. Total loan impairment expense was $256 million in the quarter, up from $204m a year earlier, with strong provisioning levels maintained and the economic overlay unchanged. Home loan arrears were higher in Bankwest than the Australian and New Zealand businesses.

The Group’s Basel III Common Equity Tier 1 (CET1) APRA ratio was 8.7 per cent as at 31 March 2015, an increase of 20 basis points on December 2014 after excluding the impact of the 2015 interim dividend (which included the issuance of shares in respect of the Dividend Reinvestment Plan). The Group’s Basel III Internationally Comparable CET1 ratio as at 31 March 2015 was 12.7 per cent. They will need to raise more capital on these ratios than we expected.

Funding and liquidity positions remained strong, with customer deposit funding at 64 per cent and the average tenor of the wholesale funding portfolio at 3.9 years.

Liquid assets totalled $144 billion with the Liquidity Coverage Ratio (LCR) standing at 122 per cent. The Group completed $8.5 billion of new term issuance in the quarter.

ANZ 1H 2015 Results 3% Higher

ANZ released their results for 1H 2015 today. They reported a statutory profit of $3,506m up 3% from 1H14, and a cash profit of $3,676m, up 5% from 1H14. This was slightly better than expected. The result was driven by significant growth in customer deposits (up 12%) and advances (up 10%) and a provision charge of $510 million down 3%. The Group total loss rate saw a modest decline over the year, from 21bps to 19bps and ANZ’s expectation is that the loss rate will stabilise in 2H15. It expects to be operating in a lower growth operating environment going forwards.

A 4% increase in the Interim Dividend to 86 cents per share will see ANZ shareholders receive $2.4 billion, of which around 73% will be delivered to Australian based Retail and Institutional investors. ANZ expects to maintain a payout ratio for the Financial Year 2015 towards the upper end of the 65 to 70% of Cash Profit range.

ANZ’s Capital Ratio at the end of the first half was 8.7%, up 40 basis points (bps) on the same half in 20144. This half the Dividend Reinvestment Plan will operate with a 1.5% discount which is expected to result in a participation ratio of around 20% on a full year basis.

Looking across the divisions, in Australia, profit grew 8%, driven by a 6% uplift in both income and profit before provisions. Customer numbers, business volumes and market share all grew driven by investment in products, sales and service capacity and capability. Additional staff and training, new and improved digital tools including online applications, expanded customer coverage and improved service levels delivered increased Retail loan volumes, up 8% and C&CB loan volumes, up 4%. Deposits increased 3% and 6% respectively. Home lending has now grown above system for five consecutive years. Retail net interest margin fell 5 basis points from 2.01% in 2H2014 to 1.97%. The C&CB Business delivered ongoing growth despite subdued business sector confidence. ANZ’s historic strength in the Small Business Banking (SBB) segment continued with lending up 15% having grown at double digit rates for the past 3 years. Deposits in SBB have also grown strongly and at $31 billion, are more than double the level of loans.

International and Institutional Banking increased profit by 7% with strong contributions from Global Markets customer sales and the Cash Management business along with ongoing benign credit outcomes. PBP increased by 1%. Geographically, Asia Pacific Europe and America (APEA) was the standout, with profit up 18%. In Asia, customer revenues increased 13%, largely through increased focus on lower capital intensity, higher return products like Foreign Exchange, Cash Management and Debt Capital Markets. ANZ is also growing strongly in the region’s key trade and investment flow corridors including those between Australia and Hong Kong, China and Hong Kong and Australia and Singapore.

In the Trade business while volumes were broadly maintained, deteriorating commodity prices reduced the value of shipments, lowering income slightly. Lending growth across the network partially offset ongoing loan margin compression which is being felt most acutely in Australia. The quality of the loan book remains high, at 79% investment grade. Deposits increased 17%, including a 27% increase in deposits in APEA. The percentage uplift in both deposits and lending in part reflects the depreciation of the Australian Dollar during the period. A record Global Markets revenue result was in large part delivered via a record customer sales outcome, most notably in Asia. Increased activity particularly in rates, commodities and FX, assisted sales in the second quarter of the year.

In New Zealand (all figures in NZD), the business has increased momentum, with income growth of 6% and profit before provisions up 8%. Economic momentum has lifted lending volumes. Profit growth after provisions was up 1% reflected a lower level of provision write-backs than in the prior comparable period. Home lending lifted 6% with market share increasing in key regions like Auckland and Christchurch. Streamlined products and processes along with digital tools helped lift Commercial and Agri business with lending up 6%.

Focussing on the Australian mortgage performance, which made up 69% of the Australian division credit exposure, there was more growth in NSW (1x3x system) than other states. Investment lending share increased, growing at system, and more loans were originated via the broker channels at 1.3x system. ANZ has been growing is mobile lender base, with a 50% increase in NSW.

Total home lending was $218 bn, up 8% net, with 934k loan accounts. The average balance at origination was $376k, (much higher than Westpac at $235k), the average LVR was 71% at origination (same as Westpac).

43% of the portfolio was ahead on repayments (Westpac was 73%) and 35% of the portfolio is interest only. 90+ day delinquencies were 5.7 basis points with highest rates in Queensland. Note this excludes non-performing loans.

BOQ 1H Results Supported By Housing Lending

BOQ today announced record interim cash earnings after tax of $167 million for the six months to 28 February 2015, a solid result driven by growing momentum in lending growth, strong Net Interest Margin performance and further asset quality improvements. Statutory profit after tax rose 14% to $154 million on the prior comparative half. Home lending including investment loans was a significant element in the results.

In its first full half since acquisition in July 2014, BOQ Specialist performed well with highlights including lending growth of $352 million in on-balance sheet mortgages, on track to exceed its target for the full financial year. BOQ’s financial performance enabled the Board to set an interim dividend of 36 cents per share fully franked, an increase of 4 cents or 13% on1H14.

Lending growth headed back towards system levels as a result of the strategic initiatives BOQ has implemented in recent years, including expansion of the mortgage broker channel and investment in the Business Bank’s presence and capabilities.Retail lending grew at an annualised 6% to $27.3 billion over the February half with $813 million underlying growth. The housing book saw increased diversification with 57% of applications originating from outside of Queensland, largely driven by the broker channel which contributed$420 million of loan growth and accounted for 14% of settlements.

Investment lending is below the 10% monitoring threshold which APRA has imposed.

Commercial lending balances continued to exceed system levels, growing by an annualised 10% over the six months to $8.0 billion. A greater presence in New South Wales, Victoria and Western Australia saw the geographic concentration of the portfolio in Queensland reduce further. In its first full half of contribution, BOQ Specialist’s contribution to lending growth exceeded expectations delivering $352 million in on-balance sheet mortgages while maintaining margins and credit quality across the portfolio. BOQ Finance grew by an annualised 6% over the half to $4.0 billion. This was a healthy result against an industry backdrop of lower volumes due to a slowdown in plant and equipment investment in the broader economy.

Despite a highly competitive market, the Bank’s Net Interest Margin rose 20 basis points from February 2014 to 1.97% due to an 11 basis point increase from BOQ Specialist as well as ongoing pricing discipline. Deposit interest rates were managed down.

BOQ’s Common Equity Tier 1 ratio increased 19 basis points to 8.82% during the half. The Bank’s capital position remains the highest of Australia’s regional and major banks based on Standard and Poor’s risk-adjusted capital approach, positioning it well given the evolving domestic and global regulatory environment. Cost to Income (CTI) ratio for the half increased to 48.1% due to the inclusion of BOQ Specialist for the entire period as well as one-off costs(property costs and CRM impairment expenses) already flagged to the market. Excluding BOQ Specialist, underlying expense growth was 3% annualised from 2H14. Total loan impairment expense was down 22% on prior comparative period to $36 million (1H14: $46 million). Total impaired assets across retail,commercial and BOQ Finance fell 13% to $259 million (1H14: $298 million). Housing impairments rose.

During the half, BOQ continued to strengthen its balance sheet, creating a sustainable funding profile that is able to support growth and deliver internal capital generation. Fitch Ratings’ decision in November 2014 to lift its long-term credit rating from BBB+ to A- followed similar upgrades from other ratings agencies. These changes have improved access to long-term wholesale funding markets and allowed the Bank to actively manage its funding profile by diversifying composition and increasing duration, while reducing cost.

BOQ advocates the implementation of stronger capital measures as recommended by the FSI inquiry.

We think BOQ’s future will be determined by the trajectory of the housing market, and the extent to which they are able to grow their commercial business in an increasingly competitive market. They are certainly at a capital disadvantage compared with the majors and will need to target customer segments carefully to compete successfully.

AMP Lifts Profit 32%

AMP Limited has reported a net profit of A$884 million for the full year to 31 December 2014^,, up 32 per cent on A$672 million reported for FY 13. In response AMP’s share price rose to a five year high. Their banking division has grown on the back of a 9% rise in mortgage lending.

Underlying profit was A$1,045 million compared with A$849 million for FY 13, up 23 per cent year on year, driven by double digit growth in operating earnings across all contemporary businesses.

The Board has declared a 17 per cent increase to the final dividend to 13.5 cents per share compared with 11.5 cents per share for the 2013 final dividend. This represents a FY 14 payout ratio of 74 per cent of underlying profit and is within AMP’s target range of paying 70 to 80 per cent of underlying profit.

The group cost to income ratio was managed tightly to 44.8 per cent for FY 14, down from 49.4 per cent in FY 13. Controllable costs increased 1.1 per cent and are tracking in line with guidance having been impacted positively by the business efficiency program.

Australian wealth management net cashflows were A$2.3 billion in FY 14, up A$115 million on net cashflows of A$2.2 billion in FY 13. AUM rose 9 per cent over the year to $109.5 billion, against a relatively flat Australian market. Total net cashflows on AMP platforms continue to perform strongly, growing 35 per cent to A$3.6 billion in FY 14. AMP Capital external net cashflows were A$3.7 billion, a A$4.8 billion improvement from net cash outflows of A$1,039 million in FY 13.

Underlying return on equity: Increased to 12.7 per cent in FY 14 from 10.7 per cent in FY 13, reflecting the 23 per cent increase in underlying profit.

In Australian wealth management, operating earnings for FY 14 were up 13 per cent compared with FY 13, reflecting higher net cashflows supporting good growth in AUM and disciplined cost control in a growing business.

Australian wealth protection has recovered well with operating earnings of A$188 million compared with A$64 million in 2013.

AMP Capital’s improved performance: Operating earnings increased 16 per cent reflecting strong fee growth and investment returns. The internationalisation of the business drove this with global investors attracted by leading infrastructure and property capabilities alongside new inflows generated by the China Life AMP Asset Management joint venture and improved flows from the MUTB alliance. The cost to income ratio of 63 per cent was within AMP Capital’s target range of 60 to 65 per cent.

Seventh quarter of more than A$1 billion net cashflows on North platform: Net cashflows improved 34 per cent to A$5.5 billion for FY 14 and North AUM grew 66 per cent to A$16 billion since December 2013. North also had 50 per cent growth in customers with a total of over 76,000 customers on the platform in 2014.

AMP Bank: The bank delivered A$91 million in operating earnings, up 10 per cent compared with FY 13, reflecting an increase in residential mortgages with AMP growing above system in an intensely competitive environment and AMP aligned advisers contributing a quarter of new business. Total revenue increased 12% in FY 14 on FY 13, driven mainly by growth in the loan portfolio and improved net interest margin.

AMP Bank maintained a competitive lending position, with the total loan book growing by A$1,169m to A$14.5b in FY 14, an increase of 8.8% on FY 13. Residential mortgage competition remained intense in the period, with continued market-wide discounting. AMP Bank’s focus on pricing enhancements and productivity from key channels, contributed to deliver above system residential mortgage book growth of A$1,117m (9%) in FY 14 to A$14.0b. Strong growth was delivered through both the broker and AMP aligned adviser channels. The AMP aligned adviser channel now contributes 25% of AMP Bank’s mortgage new business, up from 19% in FY 13.Owner occupied loans made up 62% of the mortgage portfolio at 31 December 2014, while investment property loans were 38%

Customer deposits increased over FY 14 by A$0.5b (6%) to A$9.2b. The deposit growth was primarily driven by AMP Bank’s Notice Saver Account and the North Platform, offset by a reduction in both term deposits and deposits sourced from financial institutions. Customer deposit to loan ratio was 64% for FY 14, compared with 66% for FY 13

Net interest margin was 1.41% for FY 14, up 2 bps from FY 13 and up 6 bps from 1H 14, aided by improved cost of wholesale funding during the period, targeted use of discounting and enhanced liquidity managemen. AMP Bank’s credit policy remains conservative and has not been relaxed to achieve growth. Asset quality remains strong, with mortgages in arrears (90+ days) at 0.42% as at December 2014 (0.37% as at December 2013). Loan impairment expense to gross loans and advances was 0.01% in FY 14.

AMP Bank’s variable costs increased by A$9m (18%) in FY 14, largely attributable to higher commission payments, mortgage acquisition and securitisation financing costs. AMP Bank’s controllable costs increased A$6m (12%) to A$56m in FY 14, from A$50m in FY 13, due to investments in technology, product development and operating capability to support the growth in lending and improvements to customer service levels. AMP Bank’s cost base will continue to rise as it invests to support growth. The cost to income ratio increased by 0.7 percentage points to 30.3% in FY 14 from 29.6% in FY 13.

The Capital Adequacy Ratio (CAR) was 12.2% at FY 14, (11.8% at FY 13). The Common Equity Tier 1 Capital Ratio at FY 14 was 9.3% (8.7% at FY 13). Both ratios remain well above APRA and internal thresholds. AMP Bank is building its capital holdings to ensure compliance with Basel III capital requirements upon implementation in 2016

New Zealand achieved improved cashflows: Operating earnings of A$110 million, up 13 per cent compared with FY 13, reflecting growth in profit margins, experience profits and favourable currency movements.

Future of advice strategy: A package of measures to lift the quality of advice is being introduced along with a new approach to advice being piloted in five locations. AMP is also investing in services, platforms and digital capabilities to improve adviser quality and productivity. Australian adviser numbers are up slightly at 3,844 in a period of regulatory uncertainty.

AMP continues to hold an appropriate capital surplus, with A$2.0 billion capital above minimum regulatory requirements at 31 December 2014, down from A$2.1 billion at 31 December 2013. The decrease was driven by the redemption of AMP Notes and the impact of falling bond yields, partially offset by retained profits and other capital impacts.

Macquarie Group Operational Briefing

Macquarie Group Limited (Macquarie) today provided an update on business activity in the third quarter of the financial year ending 31 March 2015 (December 2014 quarter) and updated the outlook for the financial year ending 31 March 2015 (FY15). It was a solid story, and the changes in business mix are likely to support momentum together with positive movements in exchange rates.

Trading conditions across the Group have continued to improve during the Dec 14 quarter and there has been a continued weakening of the Australian dollar
Annuity-style businesses’ combined Dec 14 quarter net profit contribution down on both a strong Dec 13 quarter (prior corresponding period) and Sep 14 quarter (prior period) which benefited from significant performance fees in Macquarie Asset Management (formerly Macquarie Funds Group) and the sale of OzForex
Capital markets facing businesses experienced improved trading conditions with combined Dec 14 quarter net profit contribution¹ up significantly on both the prior corresponding period and the prior period
APRA Basel III Group capital of $A14.3 billion, $A1.4 billion surplus to minimum regulatory capital requirements from 1 January 2016³, $A2.6 billion surplus to existing requirements
Macquarie Funds Group has changed its name to Macquarie Asset Management, and Fixed Income, Currencies and Commodities has changed its name to Commodities and Financial Markets to better align the group names to their business activities

Looking at the segmentals:

Macquarie Asset Management (MAM), Australia’s largest global asset manager, saw assets under management increase to $A453.3 billion at 31 December 2014 from $A423.3 billion at 30 September 2014. Since 1H15, Macquarie Infrastructure and Real Assets raised $A2.2 billion in new equity, largely in Pan-Asia infrastructure. Macquarie Investment Management was awarded $A2.1 billion in new, funded institutional mandates across 14 strategies from clients in six countries. Macquarie Specialised Investment Solutions reached first close on the UK Inflation-linked Infrastructure Debt Fund.
Corporate and Asset Finance (CAF) experienced continued growth in the lending and asset portfolios, increasing to $A29.0 billion at 31 December 2014 from $A27.5 billion at 30 September 2014. CAF continued to grow its corporate and real estate lending portfolios across all geographies, and the Energy Leasing business continued its key funding role in the rollout of smart meters throughout the UK.
Banking and Financial Services (BFS) increased its Australian mortgage portfolio to $A22.3 billion at 31 December 2014 from $A19.8 billion at 30 September 2014, which represents 1.6 per cent of the Australian mortgage market. Macquarie platform assets under administration increased by four per cent during the December 2014 quarter to $A43.2 billion while retail deposits increased by one per cent during the same period to $A35.7 billion.
Macquarie Securities Group (MSG) held the No.1 market share position for Australia/New Zealand Initial Public Offerings (IPOs) by number and value of deals⁵. In October 2014, MSG launched its Malaysia Structured Warrants product gaining No.1 market share⁶, establishing Macquarie as a leading issuer in Asia by coverage.
Macquarie Capital completed a number of transactions in the December 2014 quarter including: Joint Lead Manager on the $A5.7 billion IPO of Medibank Private, the largest Australian IPO in 2014 and the second largest Australian IPO ever; Adviser to Freeport LNG on its landmark $US11 billion equity and debt raising to project finance its LNG export facility in Texas; and Adviser to State Grid Corporation of China on the €2.1 billion acquisition of a 35 per cent interest in CDP RETI in Italy.
Commodities and Financial Markets (CFM) experienced increased volatility in oil and gas prices which generated increased customer activity across the energy platform. The business also experienced stronger client flows in foreign exchange due to increased market volatility. CFM is ranked the No.3 US physical gas marketer in North America

Looking further at the Australian mortgage business, we see significant growth in the book, a fall in the mix of high LVR loans, and a slightly higher concentration in NSW and Investment loans than system. The Australian mortgage portfolio includes $1.5 billion portfolio of non-branded mortgages they purchased from ING in September.

ANZ Trading Update – Solid In Tough Environment

ANZ today announced an unaudited cash profit of $1.79 billion and an unaudited statutory net profit of $1.65 billion for the 3 months to 31 December 2014, declaring it was a “solid result in a tough environment”. We say, “below expectations, in an increasingly complex and competitive market!” Profit before Provisions grew 5.2% versus the prior comparable period and rose 3.6% on a constant Foreign Exchange (FX) basis. This result was below consensus estimates, with margins squeezed, institutional banking revenue down, and provisions lower than expected. The share price fell on the day.

Revenue was above the quarterly average for FY14 with benefits from the decline in the Australian dollar exchange rate partially offset by lower Global Markets trading income. Expenses were also higher than the FY14 quarterly average reflecting exchange rate impacts along with several key business enhancement projects becoming operational. This included a new digital platform for the Australian business which provides better product speed to market and customer interface. ANZ continues to invest in growth opportunities and enablement capability.

Customer deposits grew 9% with net loans and advances up 8%. Deposit growth was strong across all geographies with lending demand varied across the Group and customer pay-down levels remaining elevated.

Group Net Interest Margin declined 6bps compared with the end of the second half FY14, 2bps of which related to foreign exchange translation impacts. The remainder was largely attributable to Global Markets and the impact of higher liquidity requirements.

Portfolio quality improvement, with further reductions in impaired assets. The provision charge of $232m was slightly lower than the FY14 quarterly average with no reduction in the management overlay balance during the period.

Excluding the impact of the FY14 final dividend payment, CET1 capital improved by around 20 bps. At 31 December the capital ratio on an APRA CET1 basis was 8.4% (11.9% Basel 3 Internationally Comparable basis). Risk Weighted Assets in creased $17.4 billion of which $8.2 billion was attributable to FX translation which has a negligible impact on Group CET1.

Looking at the segmentals,

The Australia Division is performing strongly, with all core segments contributing. Home lending has continued to grow at above system rates, with the fastest growth occurring in New South Wales. Targeted campaigns, leveraging our digital sales capabilities, have seen the Credit Cards business rebound, posting the highest market share gains of the major banks in the past 6 months. Commercial lending momentum has been maintained following the trend in the second half of FY14, particularly in Small Business Banking. Deposit growth trends were also positive, especially in Commercial, and ANZ has maintained market share in Household Deposits.

The New Zealand Division is also performing strongly delivering balance sheet growth with market share steady in the competitive mortgages market and deposit growth also strong. Ongoing benefits from the brand and systems merge continue to contribute to positive income expense jaws and the credit environment remains benign.

Global Wealth continues to build momentum, delivering strong in-force premiums growth, stable claims and lapse experience together with further growth in Funds under Management. Innovations including ANZ Smart Choice Super, the GROW by ANZ digital platform and the ANZ Grow Centre are driving greater adoption of Wealth products by both new to bank and existing ANZ customers.

International and Institutional Banking had a mixed start to the year. Trade volumes have been consistent; however significant reductions in commodity prices are impacting the value of shipments and providing a revenue headwind. Cash Management saw significant growth in volumes, particularly in Asia, with margins slightly improved. The Global Markets business delivered its strongest quarterly customer sales result in two years; however total Markets revenues (1Q15 $555 million) were down on the quarterly average for last year reflecting lower trading income. The business settings remain cons ervative with the value at risk (VaR) tracking below 2014 levels.