ANZ beats and also exposes Westpac

ANZ doubled its profit but in real terms it actually did a little better than Westpac which earlier this week reported that first half cash profit had trebled.

ANZ CEO Shayne Elliott discussing the bank’s first half results on May 5, 2021. Picture: by Arsineh Houspian

WESTPAC supposedly more than tripled its profit, while ANZ “only” doubled its profit — but in real profit terms the ANZ actually did a little better than Westpac.

Indeed, in the real operational terms that matter, both banks had profit falls — albeit, relatively small falls, but not increases and certainly not those spectacular reported increases.

ANZ had the smaller fall.

Furthermore, ANZ actually spelt the real story out for its shareholders upfront in its press releases.

It sensibly in both shareholder and general PR terms didn’t seek to hide or even obscure the real story.

In contrast, for some odd and hard to understand reason, Westpac did not — choosing instead to hide the real story; not exactly a good look from and for the supposed “new broom” team of chairman John McFarlane and CEO Peter King.

As I explained on Tuesday with Westpac’s result, the reported bank profits of this latest half year compared with the March 2020 half are badly distorted by the panic which swept over bank executive offices and boardrooms a year ago, as we plunged into the (global) politician-mandated lockdown recession.

ANZ CEO Shayne Elliott discussing the first half result on May 5, 2021. Picture: Arsineh Houspian

The banks massively over-provided for huge loan losses that never arrived.

This meant that they have not had to make loan loss provisions this time — and both banks actually wrote back significant chunks of earlier provision and so boosted profit.

In both cases, not only was this year’s profit artificially boosted as a consequence but last year’s was artificially depressed — thereby generating those spectacular and completely misleading headline leaps.

That’s one distortion. The other one is the big one-off hits the banks have been incurring for being, let’s put it gently, either “naughty”, or incompetent, or mostly both.

The big one for Westpac was the $1bn Austrac fine for money laundering that hit its 2020 profit.

Because of that $1bn fine and the massive $2.2bn overprovision for loan losses that shrunk the 2020 result almost to nothing, Westpac was able to, and did, right upfront shriek that its profit had leapt 256 per cent.

Take the distortions out of both the 2020 and 2021 results and Westpac’s real operational pre-tax cash profit fell 11 per cent (15 per cent in statutory terms).

Do the same calculation for ANZ, and its real profit on a March-to-March basis fell around 3 per cent. In its press releases, ANZ spelt this out in its headline dot points.

One line stated (the most indicative of true operating performance) profit “before credit impairment, tax and large notables”.

Westpac had no such line in its headline dot points in its press releases. The closest it got was profit excluding only notables (the Austrac fine), which was up a still impressive and still entirely misleading 60 per cent.

Indeed, even that partial disclosure was only in the announcement to the stock exchange; it was deliberately removed from the dot points in the email to shareholders.

All Westpac did in its announcement was to make a generalised reference to an “impairment benefit” boosting the latest profit.

There was no indication of the size of that “benefit” — and its huge impact on the reported profit leap.

There was no attempt to do what the ANZ did: to spell out the full story taking account of both the so-called “notables” and the impairment distortion.

Not a good start for the “new broom” team in telling shareholders and the market more generally the full story.

Of course, it was not “helped” by ANZ doing exactly the right thing just two days later. And I wonder which way NAB will jump Thursday.

It was also not “helped” by ASIC springing an insider trading case against Westpac. Yes, it was “historical” and might even turn out to be hysterical; but, still, not great.