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ASB, which is owned by Commonwealth Bank of Australia, reported a NZ$10 million net loss in the six months to December 31 after a big tax bill for structured finance transactions, a slight tightening of net interest margins and a near doubling of bad debt costs.

Commonwealth bank’s full half year profit results (pages 26-28) show ASB’s cash net profit after tax was A$138 million in the six months to December 2009, down 33% from A$206 million in the same half a year ago, but up from A$126 million in the half year ended June 30, 2009. Here is CBA’s full presentation to analysts.

ASB said its net interest margin fell by one basis point (0.01%) in the six months to December from the six months to June. Downward pressure on the interest margin came from higher funding costs and increased competition between banks for local deposits, ASB said. Bank funding costs are under pressure, partly because of the Reserve Bank’s push for banks to have more stable long term and local funding, and partly because of a global shortage of funding.

ASB’s loan impairment charges almost doubled to NZ$127 million in December from the year before. Total provisions stood at NZ$340 million, compared to NZ$157 million in December 2008. Total provisions represented 0.53% of total assets at December, from 0.4% in June, ASB said.

ASB paid ordinary dividends of NZ$70 million to its New Zealand holding company, but did not send any dividends across the Tasman to CBA: “with our parent committed to supporting its businesses in New Zealand, especially during these challenging times, no dividends were paid across the Tasman to the Commonwealth Bank of Australia,” it said.

However, ASB then said it had lifted its salary freeze placed on employees paid over NZ$50,000 “With the emerging recovery in the economy”.

Here is the full release below from ASB:

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New Zealand’s big four Australian-owned banks and the Inland Revenue Department have announced a settlement of their disputes over structured finance deals that involves the banks paying the government a gross NZ$2.2 billion. This represents 80% of the amounts owed by the banks and is the largest commercial settlement with the IRD in its history.  (Updated with comment from ANZ, ASB, BNZ, Westpac and the IRD)

The settlement follows years of legal fights and two high court rulings in favour of the IRD. The banks will not pay penalties and the full details of the settlement are confidential, although they are paying 80% of the total tax owed plus interest. The amount was enough to boost New Zealand’s current account into a surplus in the September quarter for the first time in almost 21 years.

The Commissioner of Inland Revenue, Robert Russell, and the Solicitor-General, David Collins, said they were pleased the long-running tax disputes involving four major banks had been settled.

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By Bernard Hickey

Commonwealth Bank of Australia’s New Zealand operation, ASB Bank, has reported a 10% fall in underlying profit in the September quarter as lending margins contracted and bad debt charges more than tripled. New ASB Chief Executive Charles Pink forecast a tough period for banks and the economy in the years ahead as individuals and companies ‘hunkered down’ to de-leverage in the wake of the Global Financial Crisis (GFC).

“I don’t see when we’re going to get back to double digit lending growth,” Pink told Interest.co.nz in an interview.

“I think the GFC has bought a significant change to the world and New Zealand. People are deleveraging rather than leveraging and companies are de-leveraging rather than leveraging. People in companies are hunkering down,” he said.

“We probably will see low single digit lending growth going forward, which is not the world we’ve been used to in the last 10-20 years globally or in New Zealand.”

ASB’s underlying profit in the three months to September 30 fell 10% to NZ$85 million from NZ$94 million in the same period a year ago, driven by a fall in its overall net interest margin from 180 basis points in mid 2008 to 160 basis points a year later and an increase in loan impairment charges, Pink said.

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ASB Bank has announced it will freeze pay for staff earning more than NZ$50,000 a year and will cut executive pay in a drive to avoid redundancies.

ASB staff would also be able to volunteer to reduce their work hours and the bonus pool to be paid in August would be cut significantly, ASB said.

“These cost reductions are aimed at protecting jobs at ASB in the face of pressures on revenue driven by the global recession,” ASB CEO Charles Pink said in a statement.

“We recognise that a pay freeze for staff earning over NZ$50,000 is a significant step and, in that spirit, I and my executive team volunteered to lead by example and take a reduction in our own salaries. This reduction will take effect on 1 July,” Pink said.

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ASB said late on Tuesday it would launch a NZ$1 billion Job Creation fund aimed at lending up to NZ$10 million each to small to medium businesses with an interest rate of 5%. ASB also said it would offer special 2 year Job Creation term deposits offering 5%, meaning ASB stood to lose around NZ$30 million in lost margins (of around 300 basis points) if the fund was fully lent. (Updated to include interview with ASB executive, details on lost profits.)

The fund was aimed at businesses borrowing new money for projects that would create jobs and has been launched ahead of Prime Minister John Key’s job summit on Friday. The loans are also designed to help businesses avoid cutting jobs, ASB said. The fund would not be used to refinance existing loans, ASB added.

“If a business is prepared to invest in its future, and create or protect employment, then ASB is saying it is prepared to back them with an attractive lending rate,” ASB’s new CEO Charles Pink said in a statement.

The fund was not dependent on ASB raising a matching amount through the term deposits, said ASB’s Head of Relationship Banking and Financial Services James Mitchell.

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ASB has appointed British international banker Charles Pink as its new Managing Director. Pink is replacing Hugh Burrett, who has been 7 years in the top job in New Zealand after taking over from Ralph Norris, who is now the CEO of ASB’s parent CBA.

Pink is joining ASB from Barbados based FirstCarribean International Bank, where he was founding CEO. He had previously worked at Barclays for 18 years.

“The Board had conducted an international search for a replacement for Mr Burrett, who was standing down after seven years in the top post, and a 40 plus year career with ASB.  Candidates for the ASB role included senior New Zealand and Australian bankers and financial services executives,” said ASB chairman Gary Judd.

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