The Motley Fool

What you missed in Australia and New Zealand Banking Group’s (ASX:ANZ) profit results

The Australia and New Zealand Banking Group (ASX: ANZ) share price is paring gains as we head into the close and I think many have missed the mark when looking at its profit results today.

Shares in ANZ Bank are currently up 1% at $25.93 after rising as high as $26.16 as investors cheered the fact that its underlying cash profit was ahead of consensus. The bank also has room to undertake a capital return of some sort, which is more than what we can say about the other big banks.

But here’s the issue. The quality of the result is poor as the better than expected cash profit isn’t due to loan growth or expanding margins.

If anything, both have reversed and if that isn’t bad enough, the deterioration accelerated in the second half.

On the flipside, the cash profit was significantly bolstered by a large lowering of provisions. Some of this can be explained by changes in its institutional business but in a climate where house price falls are getting worse, this stands at odds with falling provisions.

Bear in mind, that the full impact of slumping home prices and upcoming issues with refinancing isn’t reflected in the FY18 results.

Looking at ANZ Bank’s charts on benign delinquencies will give you a false sense of security.

I chatted with a managing director of a national mortgage broker recently and he commented that one-in-five of his customers can only get refinanced on much smaller loans as the big banks have tightened the loan approval process.

These borrowers will have to either cough up more cash to pay down the original loan or remain trapped with their current lenders who will very likely slug them with higher mortgage rates due to rising funding costs.

What’s more alarming is that he thought the situation will get worse before it gets better.

I may be a shareholder in ANZ Bank but the result gives me little comfort despite claims by some experts that the depressed bank valuation already reflects the bad news.

It’s a hollow reassurance. Valuations may reflect the current bad news, but I don’t think it fully factors in potential upcoming issues in the market.

At least ANZ Bank shareholders can take comfort that the share price performance today isn’t so bad when you compare it to National Australia Bank Ltd.‘s (ASX: NAB) share price and Westpac Banking Corp’s (ASX: WBC) share price as both stocks have slumped into the red.

NAB will report its results tomorrow followed by Westpac on Monday. Only Commonwealth Bank of Australia (ASX: CBA) won’t report as it has already handed in its report card in August.

Looking for blue-chip stocks that have better potential to outperform the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index? The experts at the Motley Fool may have just the thing for you.

Click on the free link below to find out what they think the best blue-chip stocks for FY19 are.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles...