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Big bank reporting season underway with cost management in the spotlight

Posted in Bonds

By Gareth Vaughan

BNZ's parent, National Australia Bank (NAB), has kicked off the latest big bank reporting season, saying BNZ's cash earnings rose in the December quarter.

Along with cash earnings at its New Zealand unit being higher, NAB said BNZ revenues benefited from good volume growth and higher fee income.

"Asset quality was stable with bad and doubtful debts and key asset quality indicators both consistent with the prior half," NAB said of BNZ in its statement.

NAB said group unaudited cash earnings rose 3.6% to A$1.45 billion (about NZ$1.8 billion) from A$1.4 billion in the same period of the previous year. Revenue rose 3% and expenses 4%. Strength in wholesale banking and an expanded margin earned off customers were cited as revenue boosters, with investment in the Australian operations and wage increases said to have helped push up costs.

The bank said its first quarter charge for bad and doubtful debts was A$554 million, down A$63 million, or 10%. NAB has raised about A$8.6 billion of term wholesale funding so far this financial year, which includes about A$2.2 billion of secured funding through the likes of covered bonds. These figures exclude A$6 billion of pre-funding for the 2013 financial year raised before it began last October. The weighted average term to maturity of the money raised was 5.1 years, with NAB's stable funding index unchanged at 86%.

"In this environment cost management continues to be a key priority but we remain mindful of the need to balance this objective against the importance of continued investment," NAB CEO Cameron Clyne said.

"On this front our technology transformation project continues to make good progress. A further update will be provided on Wednesday March 13 on NAB's progress with this transformation and a refresh of the Group's medium term strategic priorities, focusing on the roll of technology in the business and the implications of changed economic and social conditions."

NAB shares rose 1.9% to A$28.63 yesterday.

CBA/ASB half-year results next Wednesday

ASB and its parent Commonwealth Bank of Australia (CBA) report next, with half-year results covering the six months to December 31, next Wednesday. ANZ will then deliver a first quarter trading update on Friday February 15. Westpac no longer provides quarterly updates.

Looking at the results across the banking sector, Australian-based Goldman Sachs analysts said given the banks have limited levers left to generate further earnings growth, cost containment is a key focus.

"In particular we expect this to be a key feature of ANZ's international and institutional division commentary as well as NAB," the Goldman Sachs analysts said.

Analysts' expect CBA to post cash earnings of about A$3.679 billion, which would be up A$103 million, or 3%, from the equivalent period last year, and pay an interim dividend of about A$1.60, up A23 cents. ASB last year posted record half-year net profit after tax of NZ$372 million, which was up NZ$89 million, or 31%.

The Goldman Sachs analysts are picking unaudited cash earnings of A$1.864 billion from ANZ, and Macquarie analysts expect about A$1.4 billion. In the first quarter last year ANZ posted A$1.48 billion.

'Stay of execution'

Macquarie's banking analysts, meanwhile, suggest the results round will provide a "stay of execution" for the banking sector, with investors' worst fears about impairments unlikely to crystallise. That said, they're concerned about the implications of the slowing mining/energy boom in Australia as 2013 progresses.

"The sector earnings growth outlook remains weak, which this results season is likely to show, However, it is still growth, rather than a contraction in earnings that we are likely to see. In this sense we believe the bank results are likely to be taken positively, particularly given the bearish sentiment expressed by a number of the major banks at the tail end of last year," the Macquarie analysts said.

"As this year progresses, however, we remain concerned about the implications of a slowing mining/energy boom particularly on corporate/housing loan growth and impairment, given the sector is looking expensive."

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