ANZ reached its record high of almost $20 in June last year, but has since succumbed to uncertainties in both the international and domestic economies.
Price movement
ANZ reached its record high of almost $20 in June last year, but has since succumbed to uncertainties in both the international and domestic economies.The share price touched a yearly low of $16 in February and then witnessed a strong, quick rally back above $18. However, the price chart below shows a trend towards a weakening price.
Profile ANZ is the fourth-largest bank in Australia and a major international banking and financial services company. It has been in banking in Australia for more than 150 years and is among the top 100 banks worldwide. The bank provides retail and corporate banking services throughout Australia and New Zealand, and it is now expanding into Asia.
Current details ANZ posted a first half net profit of $1.14 billion, which was 9 per cent higher than for the previous corresponding period. Provisions for bad and doubtful debts are viewed by analysts as being more than adequately covered.
Domestically the bank has diversified over the past decade, away from retail banking, and it has the smallest branch network of the major four banks. ANZ Bank is pursuing a strategy of operating through 16 specialist business units.
Its international strategy is to have up to 10 per cent of its capital ($1 billion) in Asian investments. This it is doing in small chunks in order to defray capital risk but gain leverage should their investments bear fruit.
The market is expecting details of a part purchase (with the World Bank's International Finance Corporation) of the Thai Military Bank (TMB). The Thai Government is seeking to bolster the TMB's capital adequacy - it is Thailand's sixth largest bank. It also has a credit card joint venture with Metrobank, the Philippines' largest bank, and a relationship in China with the Shanghai Rural Credit Co-operative Union. It also owns up to 29 per cent of Indonesia's Panin Bank, purchased in 1998-99 for $159 million but since written down to $50 million. Increasing its Asian focus will provide additional risks for managerial control and minority stakes, which may be at the expense of its domestic operations.
Sector ANZ has the lowest cost structure of the majors, giving it limited opportunity to reap further efficiency gains. This will put more pressure on the company to increase its domestic market share without increasing costs.
National Australia Bank is the other major with significant overseas earnings, but these are from Europe. Asian economies are still dependent on the US dollar; its current weakness has negative implications.
Worth buying? The announcement of further overseas acquisitions rather than the possibility of a share buyback increases the risk and its shares become less attractive to investors. Under tight domestic economic conditions, the outlook for growth is limited. Likewise the Asian economy is adjusting to the weaker and more competitive US dollar. Shareholders can expect a period of underperformance. Sell.
Geoffrey Hill is presenter of ABC NewsRadio's daily afternoon finance report and is an independent private client adviser. Email gh@ghill.com.au
