ANZ, Insulated From Credit Crisis, Has Record Profit (Update2)

By Stuart Kelly

Oct. 25 (Bloomberg) -- Australia & New Zealand Banking Group Ltd. posted record second-half profit as the fastest revenue growth in seven years and increased deposits insulated the bank from higher global funding costs.

Net income at Australia's third-largest bank climbed 11 percent to A$2.08 billion ($1.88 billion) in the six months ended Sept. 30, from A$1.88 billion a year earlier, the Melbourne-based bank said in a statement today.

Deposits surged 17 percent at ANZ for the full year, stoking a 10 percent gain in revenue. Australian banks are drawing on customers' savings to help fund the quickest lending growth in 18 years while non-bank companies such as Rams Home Loans Group struggle to finance mortgages in debt markets.

``If anything, the big banks like ANZ are set to benefit as subprime shakes out the competition from non-bank lenders,'' said Atul Lele, who helps manage the equivalent of $380 million, including ANZ shares, at White Funds Management in Sydney before the result. ``I'm very enthusiastic that we'll keep seeing stronger earnings.''

ANZ Bank's results may herald increased earnings at National Australia Bank Ltd., the nation's biggest, and Westpac Banking Corp., which report in coming weeks. Westpac, the fourth-largest, bought Rams's 92 outlets this month after the lender failed to refinance more than A$6 billion of loans.

Bank Stocks

ANZ shares fell 87 cents, or 2.8 percent, to A$30.24 at 10:57 a.m. in Sydney after full-year cash profit of A$3.92 billion missed some analysts estimates and the company failed to provide an earnings forecast. The stock has risen 7.2 percent this year, compared with a 12 percent gain in Australia's eight-member S&P/ASX 200 Banks Index. The 24-member KBW Banks Index in the U.S. dropped 14 percent this year as subprime lending losses dented investor confidence.

The bank trades at 14.8 times estimated 2008 earnings, compared with 11.1 times for Citigroup Inc., the biggest U.S. bank, and 10.5 times for Bank of America Corp., the No. 2.

ANZ's full-year profit rose 13 percent to A$4.18 billion, or A$2.24 per share. The bank opened 39 branches and increased staff by 9 percent in 2007.

Chief Executive Officer Michael Smith, who joined the bank this month from HSBC Holdings Plc, forecast continued revenue growth as the bank estimated Australia's economy will expand for a 17th year.

``Banks have been absorbing the increased cost of funding,'' Smith said. ``We expect income growth to outstretch cost growth in the foreseeable future.''

Subprime Impact

Australian banks' lending to households and businesses rose 16.2 percent in the 12 months ended Aug. 31, the fastest annual pace since Oct. 1989, according to central bank data.

Limited investment in the U.S. subprime mortgage market, the small size of the local non-bank home loan industry and lower bad debts relative to global peers enabled Australian banks to shrug off most of the effects of the worst credit-market shakeout since 1998, the central bank said last month.

``The growth in lending and deposits is going to be a feature of the reporting season, and will put large banks like ANZ in a pretty good position to weather most of the effects of the credit slump,'' said Jason Teh, who helps manage the equivalent of about $5.4 billion, including ANZ shares, at Investors Mutual in Sydney. ``We'll see banks gradually passing on higher funding costs to consumers and stealing market share from the smaller non-bank lenders.''

Asian Expansion

Smith joined ANZ Oct. 1 from HSBC to spearhead the company's expansion in Asia, where the bank has more investments than its local rivals.

Profit from Asian businesses jumped 37 percent for the full year, outpacing other regions. Earnings from the Australian business rose 16 percent, while New Zealand profit climbed 10 percent.

ANZ last month completed a $263 million purchase of a 19.9 percent stake in Shanghai Rural Commercial Bank. It has operated in China for 21 years and was the first Australian lender to open an office in the country in 1986.

ANZ will pay a second-half dividend of 74 cents a share, up from 69 cents a year earlier.